Whether it’s for directors, shareholders or creditors, the evaluation of financial statements is a necessary accounting task to optimize decisions about the future of the company.
In an effort to bring more credibility and reliability to financial statements, managers hire chartered professional accountants (CPAs) to prepare three types of reports: compilation engagement, review engagement, and audit engagement. Despite their similarities, it’s important to understand the difference between the three reports to give the accountant the assignment that meets the user’s specific needs.
The Compilation, which accompanies the compilation engagement, is a basic report that accompanies your financial statements. The compiled statements are not audited and the CPA who prepared them does not offer any assurance or opinion regarding the accuracy and completeness of the information provided by the client.
The Compilation is a much simpler report than the review engagement and audit, so it's faster to complete and cheaper.
The use of the compilation is common among small and medium-sized enterprises (SMEs) that do not have a significant financial commitment. A compilation is an option to consider if no level of assurance is required for the financial statements.
Developed exclusively by a CPA holding a public accountancy permit, the review engagement is a certification mandate that consists in verifying the plausibility of financial data.
The review mission report is issued after performing analytical procedures and interviews with management and accounting staff. It consists in collecting sufficient information to confirm the absence of elements which could lead to believe that the financial statements do not comply with the accounting standards in force (ASPE or IFRS).
The CPA gives an opinion on the plausibility of the financial statements, which corresponds to limited assurance.
The review mission is generally requested by
Representing financial statements through a review engagement is also an important advantage when you want to sell your business. Lenders and SMEs are increasingly using this type of accounting report as it certifies financial statements and is a more affordable option than an audit engagement.
An accounting audit is the highest level of assurance on the financial statements that a CPA can provide. The purpose of an audit engagement is to provide users with reasonable assurance that the financial statements are free from significant discrepancies or misstatement and comply with applicable accounting standards.
Even if auditors are on the lookout for signs of error or fraud, it’s impossible to be certain that they all are identified.
The engagement plans to observe, test and examine the accounts of the company. In addition to the analytical study of the financial situation, the auditor may request supporting documents that support the verified transactions, such as invoices, contracts or statements of account. In addition, he will recommend corrective measures to the client to improve the information system and internal controls.
The following are examples of items that can be inspected during an accounting audit:
An audit engagement is usually performed in the event of the sale of a business or when requested by a lender, shareholder, regulator or creditor. The accounting audit is also used by companies with several shareholders or with significant financial commitments.
It certifies that the financial statements reflect a true and fair view of the operations of the company. This information favors any investment project or the interest of new shareholders.
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