Difference between Audit and Review

Audit and review are two distinct types of financial examinations conducted by professionals to assess the accuracy and reliability of financial statements, but they differ in terms of their scope, level of assurance provided, and procedures involved. Here's a breakdown of the differences between an audit and a review:

 

1. Purpose:

   • Audit: An audit is conducted to provide a high level of assurance that the financial statements are free from material misstatement and are presented fairly in accordance with the applicable financial reporting framework (e.g., Generally Accepted Accounting Principles - GAAP).
   • Review: A review is performed to provide limited assurance that the financial statements are free from material misstatement. The objective is to assess whether the financial statements are plausible and in accordance with the applicable financial reporting framework, but the level of assurance provided is lower compared to an audit.

2. Scope:

   • Audit: Audits involve a comprehensive examination of financial statements, including testing of accounting records, verification of transactions, assessment of internal controls, and obtaining evidence through inquiries, observations, and confirmations.
   • Review: Reviews are less extensive compared to audits. They involve analytical procedures and inquiries, but they do not require the same level of testing and verification as audits. Reviews primarily focus on identifying unusual items or significant fluctuations in financial statement accounts.

3. Level of Assurance:

   • Audit: Audits provide a higher level of assurance because auditors express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
   • Review: Reviews provide limited assurance. While the reviewer performs procedures to obtain a reasonable basis for expressing negative assurance, they do not express an opinion on the financial statements. Instead, they issue a conclusion based on their review procedures.

4. Report Format:

   • Audit: Audit reports typically include an opinion from the auditor, stating whether the financial statements present a true and fair view of the company's financial position and performance.
   • Review: Review reports generally contain a statement expressing negative assurance, stating that the reviewer is not aware of any material modifications that should be made to the financial statements in order for them to be in accordance with the applicable financial reporting framework.

5. Regulatory Requirements:

   • Audit: In many jurisdictions, audits are required for certain entities by regulatory authorities, such as governmental agencies or stock exchanges, especially for publicly traded companies or those receiving public funds.
   • Review: Reviews may be conducted voluntarily by companies seeking to provide some level of assurance to stakeholders or may be required by lenders or other parties as part of contractual agreements.

 

In summary, while both audits and reviews aim to assess the reliability of financial statements, audits offer a higher level of assurance through a more comprehensive examination, whereas reviews provide limited assurance with less extensive procedures. The choice between an audit and a review often depends on factors such as regulatory requirements, stakeholder expectations, and the company's specific needs.

 

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