The objective of an audit is for us, the auditors, to render an opinion about whether the financial statements are fairly presented in accordance with a specified basis of accounting. An audit involves obtaining an understanding of internal controls and assessing fraud risk, testing financial transactions, confirming account balances with third parties, and other substantive procedures. Although audits are generally performed to meet creditor, regulatory or other requirements, an audit report also provides information that can be valuable to management for pro-active decision making. An important by-product of many of our audits is the comments letter that provides suggestions for improvements in controls and operations.
The objective of a review is significantly different than that of an audit. The procedures performed for a review consist of inquiry of management and analytical analyses of information provided by management. We do not render an opinion on the financial statements. Instead, reviewed financial statements provide the user with comfort that, based on the accountant's review, the accountant is not aware of any material modifications that should be made to the financial statements for the statements to be in conformity with the specified basis of accounting.
A compilation is the most basic level of service we provide with respect to financial statements and is merely a financial statement presentation of information that is furnished by management. No audit procedures or review procedures are performed on the information and, accordingly, we do not express an opinion or provide any assurance about whether the financial statements are in accordance with the specified basis of accounting.
In these engagements, the client and the auditors agree upon certain procedures to test specific areas of concern to the client or to other users of the report. The client and report users agree on the adequacy of the procedures to be performed. Our report generally takes the form of: "We performed these agreed-upon procedures". The results of the performance of these procedures are then reported. We may also make recommendations or suggestions, if outlined in the agreed-upon procedures.