Good Read Article: Audit vs. Review
I am tired of seeing the review vs. audited being tossed around. More reliability can be put on a review than some give credit for. See the similarities and notice the CPA firm.
What should I do, Audit or Review?
By Heather Taylor, CPA
EisnerAmper LLP
What is the difference between an audited financial statement and a reviewed financial
statement?
Audits and reviews are two different services that a certified public accountant (“CPA”) can
provide involving financial statements. An audit of an organization’s financial statements provides an opinion by an independent expert
that the financial statements present fairly the financial position and results of operations of the
organization. An audit requires the CPA to gather sufficient and reliable evidence regarding the
information provided in the financial statement. This evidence usually includes understanding
the organization’s system of internal controls, confirmation of balances and agreement
arrangements with third parties, testing of detailed transactions to supporting documentation,
interviews of organization personnel and board members on processes, ethics and fraud and
obtaining management representations of the completeness of the information provided.
A review of an organization’s financial statements provides a report issued by a CPA which
expresses that the financial statements are free from material misstatement. Procedures for
conducting a review of financial statements are generally limited to analytical procedures and
inquiry of management, as well as obtaining management representations of the completeness of
the information provided.
The procedures required by an audit and a review differ substantially which means that the costs
of the two services will differ substantially. An organization must carefully examine its needs
and select the level of service that will provide the assurance it requires.
When is an organization required to obtain audited financial statements?
There are various external reasons that an audit may be required.
• If an organization has bank or other financing arrangements, the lender may require that
an annual audit be performed.
Agreements with outside funders should be reviewed to determine if there are any specific
financial statement requirements.
Why should I have an audited financial statement even if it is not required?
Even if an audit is not required, some organizations choose to have their financial statements
audited. An audit can provide assurance to the governing body that there are no material
misstatements. Nonprofits fall under intense public scrutiny and therefore it may be important
that the Board show its constituents that they have exercised financial oversight by having an
audit of their financial statements. Another reason for an audit would be if the Board feels that
misstatements or fraud may exist. New buzz words in the nonprofit world are accountability and
transparency. An audit helps meet these objectives.
When is a review required and why should the organization have a review if it is not
required?
There are no state or federal laws requiring reviewed financial statements. As with an audit, there
may be grantors or lenders that require that the organization provide an annual reviewed
financial statement as part of the grant or loan agreement. A review will provide that grantor or
lender some comfort in knowing that an accountant independent of the organization has
reviewed the financial information that the organization is providing.
An audit may be cost prohibitive for an organization, so a reviewed financial statement is an
alternative that still provides a level of accountability and transparency. Although a review is less
in scope than an audit, a CPA outside of the organization is still providing some level of
assurance that the financial statement are free of material misstatements. A review will help the
board exercise its fiduciary responsibility for the organization.
When the organization engages a certified public accountant to review its financial statements, it can also receive the benefit of an
external expert providing recommendations for improvement of any internal control deficiencies
it may identify. Many times an organization does not have financial experts on the board.
Having an independent set of eyes review the financial statements of an organization provides
some level of comfort to those charged with governance that their financial position is being
fairly represented.
It is important to note that even if an organization obtains audited or reviewed financial
statements, the CPA can never guarantee that there is no fraud or error within the organization.
Both audit and review procedures only sample the information provided in the financial
statements, so they can provide reasonable assurance that the numbers are accurately stated, but
unfortunately, they can never provide absolute assurance.
Heather Taylor, CPA is a Director in EisnerAmper’s Not-for-Profit Services Group. Heather
has over 20 years experience in the public accounting and auditing profession.
"To Give Anything Less Than Your Best, Is To Sacrifice the Gift." - Steve Prefontaine
AI
