Audit vs Review
Audit and Review are the two most commonly used terms in the area of Accounting. Both of these are the types of financial statement, which includes a third type as well, known as Compilation.
An audit provides us with the highest possible level of assurance. The process of auditing includes detailed testing to validate balances and collection of evidence. A review, however, provides us with reasonable but, limited level of assurance, that is it reports mostly on the probability of the financial statements.
The main difference between the two is, an audit solely depends upon an examination of the account books critically conducted to give the judgments based on evidence/facts. A review, however, is a formal evaluation of the account books to verify whether changes are needed to be made or not.
|Parameter of Comparison||Audit||Review|
|Objective||The primary objective of an audit should be according to the auditing standards accepted in general.||The primary objective of the review, however, should be according to the standards of accounting and review services.|
|Nature of Work||In an audit, detailed study and substantiation of balances are done. It is much more in-depth testing than a review.||In review, an inquiry is done, but they aren’t enough thorough. Reviews are less detailed and mostly based on analytical work.|
|Assurance level||An audit doesn’t give absolute assurance, but it sure provides us with the highest level of assurance possible.||A review gives a limited amount of assurance because thorough checking is not done here.|
|Report Provided||An auditor’s opinion is given as positive assurance in the report provided.||The opinion in the case of review is considered to be negative assurance in the report provided.|
|Expenses||Performing an audit is generally costlier than that of a review.||Review costs much less as compared to audit, however, it is more expensive than Compilation.|
What is Audit?
An audit is the inspection of several books of accounts followed by the physical checking of inventory to assure that all departments are abiding by the documented system of recording transactions. It is performed to make sure that the financial statements provided by the organization are accurate.
In India, chartered accountants from ICAI (The Institute of Chartered Accountants of India) can perform independent audits of any organization.
The basic idea of an audit is to verify the accounts provided by any independent authority and make sure that all books of accounts are filled in an unbiased manner and no fraud is being conducted.
The accounts of all public firms need to be audited by an independent auditor before declaring their results for the same quarter.
The process of auditing requires four main steps:
- Defining the role of the auditor and making the terms of engagement clear. This is usually done in the form of a letter already signed by the client.
- Planning the whole audit process including details of deadlines and stating all the departments the auditor would be covering. The audit could be for a single day or even a whole week, depending upon the departments it requires to cover.
- The compilation of the information gathered from the audit is the next step. The data is systematically put in a report after the auditor audits the accounts or key financial statements of the company are done inspecting.
- The last and most important part is to report the result obtained. The auditor documents the results in his report and hands it over to the company.
What is Review?
A review is a service in which the auditor provides a moderate assurance that no modifications need to be made to a company’s account books’ statements for them to be following the financial reporting framework (such as GAAP or IFRS).
A review does not require the accountant to understand internal control or other audit procedures. As a result, a review does not assure the accountant that he would be getting aware of all the notable matters that would have been disclosed in an audit.
In a review, management/staff is responsible for the preparation and presentation of the company’s financial statements, while the accountant is required to have adequate knowledge of the industry as well as the company to review the financial statements.
The objective of a financial review performed by an auditor is to test the nonprofit’s financial statements and check whether they are compatible with the accounting principles generally accepted.
A review has the same goal as compared to an audit, although, a review is not conducted with proper investigation or analysis as is done in an independent audit.
Main Differences Between Audit and Review
- The main difference between an audit and a review is that the auditor needs to confirm the financial information that was examined to conduct an audit. For review, on the other hand, no such confirmation is required by the auditor.
- An audit gives the highest level of assurance to ensure that the financial statement to be audited doesn’t contain any relevant fraud. In contrast to that, a review provided by an auditor, gives only a limited assurance, that the information provided by the company, doesn’t contain any material misstatement.
- In an audit, the report provided by the auditor is considered to be of positive assurance. Conversely, in a review, the auditor’s opinion would be considered to be a negative assurance, in the report so provided.
- The review is much more expensive than a compilation, however, much cheaper than an audit. An audit is a costly procedure
- An audit report is generally concluded using “Financial statements stating a true and fair view.” A review is generally concluded by “ No matter has been encountered by us that would make us believe that the financial statements do not state a true and fair view.”
- Companies limited by guarantee with revenue more than $1M are to be audited. Whereas, companies collecting annual revenue under $1M but over $250K can opt to go for a review instead of an audit. Those who have revenue less than $250K are legally required to present neither audit nor review.
To conclude, an audit is a more organized strategy process undertaken by auditors as compared to a review. In an audit, the auditor requires to have a sufficiency of knowledge regarding not only the accounting process but also the internal control system of the company.
Legally, an audit of the business firms is compulsory, but a review seems to be voluntary.
Word Cloud for Difference Between Audit and Review
The following is a collection of the most used terms in this article on Audit and Review. This should help in recalling related terms as used in this article at a later stage for you.