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The difference between a compilation, a review, and an audit

[1]In the past, we’ve detailed the many benefits to a financial statement audit and why a business might have an audit conducted [2].  For times when a formal audit is not required, a compilation or review may satisfy the business owner’s needs. As such, it’s helpful to know the difference between the three types of accounting services.

There are three main levels of services CPAs provide to clients with respect to a Company’s financial statements prepared in accordance with a financial reporting framework (for instance accounting principles generally accepted in the United States (U.S.GAAP))–compilations, reviews, and audits.

Compilations are the most basic level of service:

No opinion is expressed, no assurance obtained, and an Accountant’s independence is not required.

Reviews introduce a higher level of rigor:

Accountant’s independence is required.

For both Compilations and Reviews, an accountant is governed by Statements on Standards for Accounting and Review Services (“SSARSs”).  These services do not include obtaining an understanding of the entity’s internal control; assessing fraud risk; testing accounting records; or other procedures ordinarily performed in an audit.

The highest level of financial statement service are Audits:

The Auditor issues a report that states the audit was conducted in accordance with GAAS, the financial statements are the responsibility of management, provides an opinion that the financial statements present fairly in all material respects, the financial position of the company and the results of operations are in conformity with the applicable financial reporting framework.   An Auditor’s independence is required.

Determining the level of service needed or required is best decided by having a discussion amongst company management, the other users of the financial statements (such as a lender, purchaser or other third party user) and a CPA.

The AICPA provides a more detailed comparative overview of these three levels of service at AICPA Comparative Overview [3] or contact a member of the ShindelRock audit team [4] to learn more.