When it comes to ensuring the accuracy of a company’s financial statements, two commonly used methods are financial statement audits and financial statement reviews. While both methods serve the same goal, they differ in terms of their scope, level of assurance, and cost.
Financial Statement Audit
A financial statement audit is a comprehensive examination of a company’s financial records conducted by an independent auditor. The auditor examines the financial statements to make sure that they are free from errors, omissions, or misstatements. The audit also includes an assessment of the company’s internal controls and risk management processes.
Financial Statement Review
A financial statement review, on the other hand, is a less extensive examination of a company’s financial statements. It is also conducted by an independent auditor, but the scope of the review is narrower than that of an audit. The auditor performs analytical procedures and inquiries to determine whether there are any material modifications that should be made to the financial statements.
So What’s The Difference?
The main difference between an audit and a review is the level of assurance provided by each method. An audit provides a high level of assurance, as the auditor expresses an opinion on whether the financial statements are fairly presented. A review, on the other hand, provides only limited assurance, as the auditor does not express an opinion on the financial statements.
Another important difference is the cost. An audit is typically more expensive than a review due to its more extensive scope and higher level of assurance. However, an audit provides a more comprehensive assessment of a company’s financial statements and internal controls.
Both financial statement audits and financial statement reviews serve important roles in ensuring the accuracy of a company’s financial statements. The choice between the two methods depends on the level of assurance required and the cost considerations. It is important for companies to carefully consider their options and choose the method that best meets their needs.
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For more information on financial statement audits and reviews, visit the American Institute of Certified Public Accountants (AICPA) website.