The objective of an audit is to an express an opinion on whether the financial statements have been prepared, in all material respects, by following applicable financial standards and generally accepted accounting principles and to comment as to whether the financial statements represent a true and fairview of a company's performance and position. A favourable audit opinion is called an "unqualified opinion", whereas an adverse audit opinion is called a "qualified opinion". The audit provides the highest level of assurance that external parties could rely on and enhances the level of confidence attributable to those financial statements. Potential investors, banks and creditors tend to require audited financial statements before they part with their cash.
Auditors are guided by International Standards on Auditing in the performance of their work. In the case of the audit of USAID funded programs, the auditor will also be guided by Generally Accepted Government AuditingStandards.
The benefits of an audit include:
· Giving shareholders reasonable assurance that those charged with a fiduciary duty have upheld their responsibilities
· Businesses that are subjected to audits tend to develop more robust financial reporting systems and consequently provide more accurate reliable financial information
· An audit will usually provide valuable insights that could result in better efficiency, reduced costs or increased profitability
· An audit provides the highest level of assurance on financial reports to providers of finance, such as banks or potential investors.
The objective of a review of financial statements is to obtain limited assurance, primarily by performing inquiry and analytical procedures, about whether the financial statements as a whole are free from material misstatement and to report and communicate on the financial statements as a whole. A review provides limited assurance on the financial statements and is less expensive than an audit. The practitioner engaged in the review is guided by the International Standard on Review Engagements 2400.
A review engagement may be used to:
· Support a financing proposal presented to potential investors and financial institutions
· Validate a need for partners to invest additional capital in the entity.
· Provide users, such as shareholders, with some assurance on the annual financial statements where an audit is no longer required
· Help management understand, and take steps to meet, the evolving requirements of regulatory and business reporting
· Help prepare the finance function of a growing company for a transition to mandatory audit
· Support internal reviews of the business by management, acting as an additional control
· Obtain limited assurance about the financial statements of small subsidiaries that are part of a group audit.
Some organizations do not need financial statements containing all disclosures normally required for general purpose use, nor do they need the assurance that can be provided by an audit or a review. In such an engagement, we compile financial statements, using information supplied by management or the proprietor of a business. Compiled financial statements are often prepared to accompany an organization's tax returns and are heavily relied on by banks, investors and the department of immigration when reviewing applications of renewal of investment and other licences. Compilations will satisfy most reporting requirements and they are less costly than an audit or review.