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Written by
Asmir A. Cavalic
Accountant, HBE LLP
Many entities are entering a point in their business life where they will require an audit, review, compilation, or even Agreed Upon Procedures (AUP). With four options to choose from, which service is right for you? This article will overview each of these areas and how they can fit your business needs.
The Benefits of an Audit
There could be many different reasons why an organization would want an audit, but the main driver tends to be creditors, investors, funders, or bankers requesting audited financial statements. Why? An audit provides the auditee and other stakeholders with the highest level of assurance that can be obtained over financial statements. The auditor gains an understanding of internal controls, assesses risks, makes inquiries related to account balances, examines supporting documentation for account balances, and issues a report providing the auditor’s opinion on the financial statements along with any findings. An auditor’s opinion provides the reader information on whether the financial statements are free of any material misstatements, if the auditor sees the entity as a going concern, and if any other significant matters need communication.
Audits vs. Reviews
Audits provide the most assurance over financial statements. In comparison, reviews provide a limited amount of assurance that there are no material modifications to be made. Reviews are more focused on analytical procedures over an entity’s financial statements, and inquiry and testing is limited to what is deemed necessary based on unusual or significant changes in balances identified. While limited assurance is provided in a review, an auditor’s opinion is not provided. Often reviews are performed for privately held companies, due to requirements of outside third parties.
Compilations
Compilations are services that provide no assurance over the entity’s financial statements. Instead, an accountant is provided financial data from the client, and the financial data is compiled as financial statements. This service is normally used by clients who would like financial statements for specific business needs. This could include a lender wanting financial statements, or just the comfort that an accountant read the financial statements.
Agreed Upon Procedures (AUP)
Agreed Upon Procedures (AUP), like complications, provide no assurance over the entity’s financial statements. The accountant examines various accounts on the balance sheet and income statement or specific transactions or processes, normally by request of the entity. Once the AUP is complete, the auditor provides a report to the entity with the factual findings of the engagement. The entity itself decides on how to proceed with that information, with no audit opinion.
HBE Is Here To Help
So, which service is right for you? Understanding your needs and the needs of your external stakeholders is key. Are you trying to secure a loan with a bank? An audit or review will provide the bank with assurance over your financial statements. Would you just like financial statements or some review of certain accounts, transactions, or processes? Then, a compilation or Agreed Upon Procedures might work for you. Contact your HBE trusted advisor and see which audit service is the best fit for your needs.