Audit, Review, or Compilation?
The differences between an audit, a review, and a compilation Extract from Step Up to the Next Level –
A Guide for Pregnancy Centers to Improve
Their Internal Operations and Prepare for an Audit
Copyright © 2006 James L. Ulvog
There are three different levels of services you could obtain from a certified public accountant. These are referred to as compilation, review, and audit. There is a common base for presenting financial statements, regardless of which level of service is used. This is a large body of rules that describe what information should be included in financial statements and the format for the information. This body of knowledge is called generally accepted accounting principles, or GAAP. Imperfect in implementation though it may be, the concept is that similar transactions will be recorded by all organizations in the same way. In addition, financial statements of similar organizations will actually look similar. Compilation
The goal of a compilation is to take information that is on the general ledger and accumulate it into financial statements in the same format that would come out of a review or audit. The format may look the same, but the accountant performs much less work in a compilation than in a review or audit. The accountant will perform an extremely limited analysis on any of the numbers presented. The accountant would only follow up on information that is obviously incorrect, such as obvious departures from GAAP. For example, if there are no depreciation expenses recorded when there should be, or if the amount of fixed assets is minimal even though there are substantial amounts of equipment in use, then the accountant would have to address the issue and make appropriate corrections. There is an extreme limitation on how much reliance can be placed on a compilation because the accountant has not gained an understanding of internal...