One of the most common misconceptions is that reviewed and audited financial statements are simply 'lighter' or 'heavier' versions of the same service. In reality, they're fundamentally different engagements designed to answer different questions.
The Technical Difference
A review provides limited assurance through inquiry and analytical procedures. An audit provides reasonable assurance by examining source documents, confirmations, and underlying evidence. The difference is significant for stakeholders.
What This Means in Practice
Many high-quality review engagements involve just as much scrutiny of the trial balance as an audit. The difference isn't how closely numbers are examined — it's whether source documents are independently inspected.
Industry Considerations
- Construction: often need audits for surety bond requirements
- Hospitality: may start with reviews, move to audits with expansion
- Manufacturing: audits for complex banking or sale preparation
- Real Estate: audits for investor reporting and construction financing
Making the Right Choice
Match the engagement to your actual needs rather than defaulting to either the minimum or maximum option. The key is understanding who relies on your financials and what level of assurance they require.
