Review, Compilation and Audit Engagements
Need a Review, Compilation or Audit? We Prepare Year-End Engagements
Feltham & Associates can perform an audit, review, or compilation engagement for your company in accordance with Canadian accounting and/or audit standards. Each engagement differs in the objective, scope of work performed and the level of assurance provided.
The objective of an audit engagement is to enable an independent professional public accountant to render an opinion on the fairness of the client’s financial statements. Audited financial statements provide the highest level of assurance and are the accepted means by which many business corporations report to shareholders, to bankers, to creditors and to government. Many not-for-profit organizations also use audited financial statements to report to government and stakeholders.
Audits are the most entailed engagement in terms of the scope of work. The auditor must plan the audit to obtain reasonable assurance that the financial statements are free of material misstatement. Through the study and evaluation of the company’s system of internal control, and by inspection of documents, observation of assets, conduction of inquiries within and outside the company and by other generally accepted auditing procedures, the auditors will gather evidence necessary to determine whether the financial statements present a fair picture of the company’s financial position and its activity during the period being audited. Because of the extensive audit procedures to provide this level of assurance, the audit engagement is the most costly of the year end engagement levels.
Where an audit is not required or the shareholders have waived the appointment of an auditor, financial statements may be prepared on a review engagement basis. The objective of a review engagement is to review the financial statements to ascertain whether they are plausible, that is, worthy of belief. A review generally does provide a level of assurance required by many lenders, and may frequently be stipulated as a loan covenant.
In performing a review, the accountant must be independent from the clients and have sufficient knowledge of the industry in which the business operates. The review process entails inquiries, analytical procedures and discussion with responsible client officials with procedures, including:
Reconcile receivables and payables
Trace subsequent payments and receipt of cash
Verify invoices for asset additions
Review receipts for possible prepaid expenses such as insurance, municipal taxes, and worker’s compensation
Obtain a bank confirmation from the organization’s financial institution to confirm any balance on hand, loans, and debts payable
Reviewers will also analyze revenues and expenses to add some assurance as to their reasonableness.
Compilation Engagements (Notice to Reader Financial Statements)
The objective of a compilation engagement is to compile unaudited financial information into financial statements, schedules or reports based on information supplied by the client. A compilation engagement is appropriate where an audit or review assurance is not required, and where the client understands that the statements may not be appropriate for general purpose use. A compilation may be applicable where financial statements are prepared for the exclusive use of the company's management or for income tax purposes.
The procedures performed are not designed to enable an accountant to provide any assurance on the reliability of the compiled information.