Other than cost, many non-accountants wonder what the difference is between an audit and a review. Basically, the difference is the level of assurance that can be provided that the financial statements are “correct”.
Audit
An audit requires a study or evaluation of internal control and an examination of evidence to support the information supplied to us.
An audit requires more detailed procedures before the auditor can express an opinion as to the fairness in which the financial statements present the financial position and operating results of the organization. This function is also based on the premise that management has accurately recorded all transactions in accordance with stipulated policies of those in charge or any funding agencies and has prepared the financial statements in accordance with generally accepted accounting principles.
Review
In a review engagement, the objective is to review the financial statements to determine whether they are plausible in the circumstances.
Generally, review procedures consist of enquiries of, and discussions with, company personnel and consideration of ratios, trends, etc. to assess the overall plausibility of the financial statements.
It could be said that a review has the same breadth as an audit but much less depth.
A review is not a substitute for an audit but its limited objective of the determination of plausibility can be useful, particularly in the case of small businesses.