Question Tag: Financial Statement Audit

Differences Between an Audit and a Review:

1. Nature of Engagement:
   • Audit: An audit is a statutory requirement that involves the auditor expressing an opinion on whether the financial statements give a true and fair view of the financial position and performance of the entity.
   • Review: A review of interim financial statements is typically a voluntary engagement requested by the client. The auditor provides a conclusion, rather than an opinion, on whether anything has come to their attention that causes them to believe that the interim financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework.
2. Level of Assurance:
   • Audit: Provides a high level of assurance (reasonable assurance) that the financial statements are free from material misstatement.
   • Review: Provides a lower level of assurance (limited assurance) that nothing has come to the auditor’s attention to suggest that the interim financial statements are not fairly presented.
3. Procedures Performed:
   • Audit: Involves extensive procedures, including tests of controls, substantive testing, and analytical procedures to gather sufficient appropriate evidence.
   • Review: Involves primarily inquiry and analytical procedures, with less emphasis on testing controls or substantive procedures.
4. Reporting:
   • Audit: Results in an audit report with an opinion on the financial statements.
   • Review: Results in a review report with a conclusion, which is less definitive than an audit opinion.
5. Scope of Work:
   • Audit: Covers the entire financial period, usually a full year, and includes all aspects of the financial statements.
   • Review: Typically focuses on interim financial information, covering a shorter period (e.g., six months) and may not address all aspects of the financial statements.

Similarities Between an Audit and a Review:

1. Ethical Considerations:
   • In both engagements, the auditor must adhere to ethical standards, including independence, objectivity, and confidentiality. Quality control procedures should be applied to ensure the engagement is performed with due care.
2. Engagement Planning:
   • Both an audit and a review require proper planning, including understanding the entity’s business, its environment, and internal control. The auditor must also assign staff with the requisite qualifications and provide necessary supervision and review of the work.
3. Professional Skepticism:
   • The auditor must maintain an attitude of professional skepticism in both engagements, remaining alert to any indications of possible misstatements.
4. Written Representations:
   • In both cases, the auditor typically obtains written representations from management regarding their responsibilities for the preparation and presentation of the financial information.
5. Reporting Obligations:
   • Both engagements result in a report provided to the client. The report must be appropriately formatted according to the applicable standards (ISA for audits, ISRE 2400 for reviews).