Audits, Reviews and Compilation Engagements Professional accountants refer to the work they perform for a specific client as an engagement and it is helpful for users of financial statements to understand the differences between an audit and other accounting engagements.

There are three different engagements associated with the financial statements of a business:

• Audit Engagements
• Review Engagements
• Compilation Engagements.

Audit Engagements
The objective of 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 businesses report to shareholders, to bankers, to creditors and to government. Federal and provincial legislation in Canada generally requires a limited company (corporation) 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 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 reported.

Review Engagements
Where an audit is not required or the shareholders have waived the appointment of an auditor, financial statements may be prepared on a review basis. Reviews provide limited assurance that the financial information conforms to generally accepted accounting principles.

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 outside accountants are satisfied that the financial statements are not misleading, the accountants’ standard report will preface the financial statements

The accountants performing a review must be independent from the client and have sufficient knowledge of the industry in 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.

This degree of assurance is less than that resulting from an audit and is expressed as either:

• The negative assurance that nothing has come to the CGA’s attention that would indicate the financial information is not presented in accordance with generally accepted accounting principles, or
• A reservation together with appropriate disclosure and explanation of the reservation.

Compilation Engagements
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 accountants to provide any assurance on the reliability of the compiled information. To warn readers of this lack of assurance, accountants attach 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 or for income tax purposes. If accountants know, or have reason to believe financial statements are misleading or incorrect, they must not associate with this information.