The end of the fiscal year has come, and you, as a client, aren’t sure what type of attestation services are required of your business. Do you need an audit, review, compilation, or even an AUP engagement? This article will give you basic knowledge about these services!
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Most of the time, your bank, lender, or licensor’s (the financial statement users’) requirements will drive the need for these services. The financial statement users want a certain degree of assurance to feel comfortable with the financial statements presented to them. Generally, the more money you are seeking to borrow correlates with the degree of assurance required.
Audit
• Level of assurance: highest level of assurance or “reasonable assurance” (Note: this is not absolute assurance)
• Purpose of engagement: to express an opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with the applicable framework
• Type of procedures performed: gain an understanding of internal control, evaluate fraud risk, inquiry, inspection, observation, external confirmations, examination, analytical procedures, etc.
• CPA’s independence required? : Yes
• Cost: Most expensive due to CPAs performing more in-depth testing
Review
• Level of assurance: basic level of assurance or “limited assurance”
• Purpose of engagement: discover if there are any material modifications that need to be made to the financial statements
• Type of procedures performed: inquiry, analytical procedures, and other limited tests
• CPA’s independence required? : Yes
• Cost: Less than an audit (due to a narrower scope), but more than a compilation (due to more procedures performed)
Compilation
• Level of assurance: no assurance
• Purpose of engagement: to make sure there are no noticeable, material errors
• Type of procedures performed: CPAs use their expertise and judgement while reading the financial statements
• CPA’s independence required? : No, but if CPA is not independent it will need to be disclosed
• Cost: Least expensive
AUP (Agreed- Upon Procedures)
• Level of assurance: no assurance
• Purpose of engagement: take a more detailed look at specific areas that the client and intended parties have identified. The users draw their own conclusion based on the auditor’s findings
• Type of procedures performed: specific procedures are performed that are agreed upon by the interested parties
• CPA’s independence required? : Yes
• Cost: Can vary based on the degree of the procedures being performed. Usually less than a review, but more than a compilation
