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 only where the client and other users do not need financial information that conforms in all respects to generally accepted accounting principles and audit or review assurance is not required, and where the client understands that the statements may not be appropriate for general purpose use.
The procedures performed are not designed to enable licensed public accountants to provide any assurance on the reliability of the compiled information. To warn readers of this lack of assurance, accountants provide a “Notice To Reader” that states that no review was performed on the information (as above) and that the information may not be appropriate for use by the reader. A compilation may be applicable where financial statements are prepared for the exclusive use of the company’s management and/or for income tax purposes.
The objective of a review engagement is to prepare and review financial statements to ascertain whether they are plausible, that is, worthy of belief. If, after reviewing the financial statements the accountants are satisfied that the financial statements are not misleading, the accountants’ standard report will preface the financial statements.
In performing a review the accountant must be independent from the clients and have sufficient knowledge of the industry which the business operates. They would acquire sufficient knowledge of the client’s business to make intelligent enquiry and assessment of the information obtained, with the limited objective of determining the plausibility of the information reported on. The review should entail enquiries, analytical procedures and discussion with responsible client officials.
The objective on an audit engagement is to enable independent professional public accountants to render an opinion on the fairness of the client’s financial statements.
Audited financial statements are the accepted means which many business corporations report to shareholders, to bankers, to creditors and to government. Federal and provincial legislation in Canada generally requires a limited company (corporations) to prepare annual financial statements for audit by qualified independent auditors.
The financial statements subject to audit are the responsibility of the company’s management. The auditors’ responsibility is to express an opinion on those financial statements. The auditors 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, making enquires 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.