For some companies, obtaining a review of their financials may be sufficient. But for others, an audit may be their only option, says Deborah Sabo, a director at SS&G.
“Some companies are required to have an audit, such as publicly traded companies and those whose loan agreements require them,” Sabo says. “But minus such requirements, it is up to the business owner to decide whether a review or an audit better fits their needs.”
Smart Business spoke with Sabo about how to determine which financial tool is best for your business.
What is the difference between a review and an audit?
With a review, the accountants perform analytical procedures and will ask management a variety of questions. The accountants will compare financial information from the prior year with current year results and ask for the client’s explanation of why things have changed.
Unless there is something unusual, there are no requirements to obtain any independent corroboration to substantiate the personnel representations made by management.
Upon completion, the accountant will issue an opinion providing limited assurance on the fair presentation of the financial statements. The review opinion is different from an audit opinion as it provides a lower level of assurance with less of a scope.
An audit, on the other hand, provides the highest level of assurance. The auditor is required to obtain third-party independent evidence to substantiate the assertions made by management. If a company holds inventory, the auditor will observe that inventory. If the company has receivables, it will need independent verification from customers for the amount owed to the company.
With an audit, the auditor is required to gain an understanding of the company’s system of internal control. They’ll also spend a significant amount of time in the planning phases of an audit, as opposed to a review.
