AUDIT COMPILATION
OFFICE OF THE TREASURER
OFFICE OF THE TREASURER
EXAMINATION AND EVALUATION
AUDIT
An audit is an objective examination and evaluation of a company’s or individual’s accounts or financial statements. The primary purpose of an audit is to form a view or opinion on whether the information in the financial statements is fairly presented in conformity with appropriate accounting principles. External audits are commonly performed by Certified Public Accountants (CPA) who must be independent of the auditee and result in an auditor’s opinion on the financial statements. Whereas, internal audits are performed by designated employees of an entity and serve as a managerial tool to make improvements to processes and internal controls.
An audit is a critical and systematic process that requires detailed testing such as examining accounting transactions and supporting records. As a result, an audit leads to the highest level of assurance that can be provided by an accountant. It consists of understanding internal controls, assessing fraud risk, inspection, confirmation, and obtaining evidence to support account balances. An audit also ensures that the financial statements conform to the applicable reporting framework, such as U.S. generally accepted accounting principles (GAAP).
COMPILATION
A compilation is one of the lowest levels of financial statements services an accountant can provide. A compilation consists essentially of presenting information obtained from a client in financial statement format. Unlike a review or an audit, this method provides no assurance by the accountant. There are no tests performed, and the auditor does not examine any internal controls. The CPA performing a compilation is not required to be independent of your business.
REVIEW
A review is a limited examination performed by a CPA, reporting on the plausibility of financial statements. It provides a limited level of assurance that there are no material modifications that should be made to the financial statements. The CPA performs analytical procedures and makes investigations to determine whether the financial statements' information is valid. This approach is more limited in scope than an audit, and restricts the CPA's analysis to analytical methods and management evaluation.
Many business owners who are not compelled to have an audit but still want an examination of their financial records may opt for a review to save time and money. External stakeholders use a review to understand the overall health of an organization as well as evaluate financial performance and business value.
AGREED-UPON PROCEDURES
The objective of an agreed-upon procedures (AUP) engagement is for the CPA to perform procedures of an audit nature to which the auditor, the entity, and any appropriate third parties have agreed upon. The CPA does not offer opinions, conclusions or assurances. Instead, the CPA’s report simply presents the facts, with the facilitators drawing their own conclusions from the CPA’s findings. The CPA’s report is usually restricted to those parties who developed the agreed-upon procedures because of the specificity of the desired results, and is therefore not intended for external parties.