What is the Difference Between Review and Audit?
🆚 Go to Comparative Table 🆚The main difference between a review and an audit lies in the level of assurance they provide and the procedures involved. Here are the key differences:
- Level of Assurance: A review provides limited assurance, while an audit provides a reasonable level of assurance about the accuracy of financial statements.
- Procedures: An audit involves detailed testing, examining internal controls, and interviewing employees within the company. In contrast, a review involves performing analytical procedures to look for trends and unusual variances, but it does not involve evaluating the company's internal controls, assessing fraud risk, or testing accounting records.
- Cost: Audits are typically more expensive than reviews due to the extensive work involved in the auditing process.
- Independence: CPAs must be independent to perform audits and reviews, which generally means that the accountant cannot be closely related to the company they are reviewing or auditing.
- Scope: Audits are the most comprehensive type of assurance service, while reviews are more limited. Audits require the auditor to express an opinion on the financial statements, whereas reviews do not provide an opinion.
In summary, an audit provides a higher level of assurance and involves more extensive procedures compared to a review. Audits are typically more expensive and require the auditor to express an opinion, while reviews provide limited assurance and involve less extensive procedures.
Comparative Table: Review vs Audit
Here is a table comparing the differences between a review and an audit:
| Aspect | Review | Audit |
|---|---|---|
| Meaning | A review refers to an evaluation of the financial books, conducted by the auditor, to determine if there are any chances of modifications or not. | An audit refers to the systematic and intelligent examination of the books of accounts of an entity. |
| Assurance level | Provides limited assurance. | Provides a reasonable level of assurance. |
| Scope | Less extensive examination of a company's financial statements. | More comprehensive examination of a company's financial records, systems, and controls. |
| Method | Involves the accountant performing analytical procedures and inquiries. | Involves assessing risks, performing tests, and issuing an opinion on the fairness of the financial statements. |
| Documentation | Limited number of documents are reviewed. | Many different documents are examined and extensive testing is conducted. |
| Cost | Less expensive, often half the cost of a full audit. | More expensive, may cost upwards of $10,000-$20,000 depending on the organization's size. |
| Legal requirement | Voluntary for most organizations, but required for some based on state law or specific agreements. | Often required for organizations receiving government funding, meeting certain revenue thresholds, or by law. |
In summary, an audit is a more critical and systematic process compared to a review, providing a higher level of assurance and involving a more extensive examination of a company's financial records, systems, and controls. A review, on the other hand, is a less extensive examination of a company's financial statements and provides limited assurance.
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