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Key Differences Between Services Audit (Highest Assurance): Requires extensive testing, verification of evidence, and understanding of internal controls. Provides a positive opinion that the financial statements are free of material misstatement. Review (Limited Assurance): Involves analytical procedures and inquiries of management to provide limited assurance that no material changes are needed. No testing of internal controls or physical inspection is performed. Compilation (No Assurance): The CPA assists management in presenting financial information in the format of financial statements without testing, verifying, or auditing the data.
Comparison Table Feature Audit Review Compilation Assurance High (Reasonable) Limited None Procedures Extensive testing/vouching Inquiries & analytical None/Formatting Independence Required Required Not Required (must disclose) Internal Controls Understand & Evaluate No testing No testing Cost High Moderate Low
When to Use Each Audit: Required for public companies, debt covenants, or large investors. Review: Suitable for growing companies seeking financing that do not require full audits. Compilation: Best for small, closely-held companies needing financial statement formatting for internal use or minor, low-risk financing.
AICPA Reporting Standards Audit: Conducted under GAAS (Generally Accepted Auditing Standards) or PCAOB for issuers. Review/Compilation: Performed under SSARS (Statements on Standards for Accounting and Review Services).
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