When it comes time for financial documents to be confirmed, the three options available are an audit, a review and a compilation. Each of these represents a very different degree of effort and investigation, and therefore each provides differing levels of confidence for investors and lenders. Let’s take a closer look at all three.
The Compilation
A compilation requires the least amount of work from an auditor. It is likely to be the most inexpensive of the three as it takes the least amount of time. However, it also provides the lowest level of assurance about the accuracy of the information presented. This is because in a compilation, the auditor does little more than hand over the original financial statements that were prepared internally by the company’s management, with no due diligence performed. Not even to determine whether the information contained in the documents is accurate or true. It relies entirely on the information originally presented.
The Review
A review demands more work on the part of the auditor. They are expected to check the accuracy of the information contained in the financial documents by asking questions and checking the reports. This review provides a moderate degree of assurance that the information is correct and can be trusted.
The Audit
An audit requires the most in depth review than either a compilation or a review. It represents a significant amount of time spent making sure that all of the disclosures and ending balances contained in the organization’s financial statements are accurate. This includes the time spent testing internal controls, confirming the engagement and statements from third parties. An audit also examines all source documents in order to make sure that they are representative of the true situation at hand. An audit often includes a physical inspection. It may also include additional procedures designed to confirm or refute the information that management has presented.
Though an audit will take the most time and be the most expensive procedure, it also provides the highest level of assurance for those considering investing in an organization or lending it money.
Feel free to contact this office with any questions relating to the different options for financial documents to be confirmed. Or send us an email using the form below.
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