differences between audit review compilation

How can a football team’s position for scoring the game winning points illustrate the differences between an audit, review, compilation, and preparation?

Image courtesy of Adobe Stock.

Let’s think about a football team and how they are positioned for scoring the winning points in the last few seconds of a tied game. They could be 4th-and-goal or perhaps not yet to a position for a field goal attempt.

Let’s use that illustration to explain the services provided by your outside accountant.

A CPA can provide four levels of services if you’re looking for financial statements.

You can hire a CPA firm to provide:

  • audit,
  • review,
  • compilation, or
  • preparation service.

What is winning the game?

We all know what that is in football.

In our accounting illustration a winning score would be perfect financial statements. Every number is correct. Not just close-enough, but exactly correct. Every disclosure complies with every single requirement.  The presentation and classification are picture perfect.

That probably never happens in real life, so let’s simplify it by saying that there is nothing even close to materially incorrect in any number, presentation, or disclosure. The financial statements are as close to perfect as is humanly possible.

That is what a win looks like.

Audit

Let’s say there is under a minute left in a tied game. Our favorite football team has just completed a successful drive and is sitting on the 1 yard line on fourth down. There’s only one play left in 30 seconds and the game is over.

Likelihood of getting a touchdown and winning the game is pretty good. Right about now the odds look incredible.

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Jim Ulvog

Price cut on print books

I’ve dropped the prices for the print copies of my books available at Amazon, Barnes & Noble, and iTunes store.

Here is what you can find on-line:

tragedy-cover

 Tragedy of Fraud – Insider Trading Edition

Story of Scott London’s fall from regional audit partner at KPMG to prison inmate because of his insider trading.

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Jim Ulvog

SSARS 21 updates the compilation and review standards previously explained in SSARS 19

The body of SSARS literature has been updated and clarified. The new document, SSARS #21, was released on October 23, 2014.

It will be effective for financial statements after December 15, 2015. That means it will usually be required for 12/31/15 financials. We will all have to move away from SSARS 19 for our work in 2016. (Unless you choose to apply SSARS 19 for clients with years ending before 12/31/15.)

Since starting this blog, all discussion of compilations and reviews have been posted on my other blog, Attestation Update.

You can find all my discussion of the new standard at the other site.

Check out:

Jim Ulvog

Newest book on differences between audits, reviews, and compilations now available in print and for Nook

Print copy and Nook e-book are in addition to availability for the Kindle and another half-dozen formats.

audit review compilation cover for wordpress croped

The book is an intentionally short read at about 30 pages. The print copy has 20 pages of text.  Focus is to quickly describe the differences between those levels of services using three illustrations:

  • A football game – How does advancing to the 10-yard line compare to an audit?
  • What would a review look like in a football game?
  • Buying a used car – How does taking the car for a test drive compare to a review?
  • Filling a bucket – How filling it up with water to different levels illustrates the differences between the levels of service.

It also explains the differences in plain language. Well, at least using less accountantese than you would usually get from an accountant.

This is a compilation of posts previously appearing on my blogs, with slight editing.

Where can you find the book?

Print book at Amazon here.

Nook e-book at Barnes and Noble here.

Kindle e-book at Amazon here.

Also available here in other formats:

  • ePub format for your iDevices
  • PDF
  • text
  • Mobi for your Kindle device
Jim Ulvog

“Audit. Review. Compilation. What’s the difference?” – New book now available.

Audit. Review. Compilation. What’s the difference? – Illustrations using a football game, buying a used car, and filling a bucket.

 audit-cover

What’s the difference between getting an audit, review, or compilation from your CPA firm? This short, 29 page book will help you understand.

Three illustrations help explain the differences:

  • A football game – How does advancing to the 10-yard line compare to an audit? What would a review look like in a football game?
  • Buying a used car – How does taking the car for a test drive compare to a review?
  • Filling a bucket – How filling it up with water to three different levels illustrates the differences between three levels of service.

This is a compilation of articles at my blog, Nonprofit Update.

The book is now available at Amazon.

Now available here in other formats:

  • ePub format for your iDevices
  • PDF or text
  • Mobi for your Kindle device

Soon to be available at Barnes and Noble.

Jim Ulvog

Football as illustration of differences between audits, reviews, and compilations

Since football season is in full swing, let’s go to the nearest stadium to compare an audit to a review, to a compilation, and to the newest level of service, a preparation report.

Audit

If you were performing an audit, you would be on the field and receive the kickoff at your 20-yard line. A series of passes and runs would slowly move the ball. With effort you would advance to your opponent’s 10-yard line. Good touchdown position.

Advancing the football would be the same as gathering evidence to provide you a reasonable level of assurance so you could issue an audit opinion on the financial statements.

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Jim Ulvog

Level of Services Provided by a CPA – The Differences Between Compilations, Reviews, and Audits

There are three different levels of services you could obtain from a certified public accountant.  These are referred to as compilation, review, and audit.

Financial statements are presented on the basis of some set of accounting rules. This is referred to as the financial reporting framework.

The vast majority of the time, this would be a large body of knowledge that 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.

If there is some unique reason to do so, the financial statements could be presented on another basis of accounting.

Compilation

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Jim Ulvog

Evaluating a used car as an illustration of the differences between compilation, review, and audit

You could figure out how good a car is by looking at it from across the street. 

Or you could look inside & drive it around the block. 

Or you could take the car to your mechanic for a couple of hours to get it really checked out .

We can use that as an analogy of the differences between a compilation, a review, and an audit.

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Jim Ulvog

Filling up a bucket – word picture for levels of assurance in audit, review, and compilation

     

(cross-post from my other blog, Attestation Update.)

In a webcast on August 31, 2011, Mr. Michael Glynn, CPA, of the AICPA staff, gave a wonderful word picture of the levels of assurance in a review and audit.  Here’s his idea:  Filling up a bucket with procedures produces different levels of assurance.  I would like to expand Mr. Glynn’s description and provide an illustration.

  • In an audit, the accountant obtains provides reasonable assurance that there are no material errors in the financial statements.
  • In a review, the accountant obtains provides limited assurance that there are no material errors in the financial statements.
  • In a compilation,the accountant does not obtain provide any assurance that there are no material errors in the financial statements.

Notice the similarity and difference?  The overlap between these definitions is how much assurance the accountant obtains for himself or herself provides that there are no material errors in the financial statements.

The differences? (more…)

Jim Ulvog

One sentence explanation of the difference between an audit and a review

I have discussed the differences between audits, reviews, and compilations here and here. Even developed a visual illustration here.  Ask any CPA and you can get a long explanation of the distinctions.

For something shorter, consult this article by Angus Loten in the Wall Street Journal, which said:

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Jim Ulvog

Visual description of the difference between audits, reviews, and compilations

Here is a visual picture that illustrates the different comfort levels someone can draw from financial statements that have been audited, reviewed, or compiled by a CPA.

Here is a picture of assurance levels from reports issues by CPAs.

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Jim Ulvog

What comfort level is there from an audit, review or compilation report?

This is an explanation of the visual picture I drew in the previous post.  I will try to explain the differences between audits, reviews, and compilations with a minimal amount of the technical words we CPAs usually bring to an issue.  (more…)

Jim Ulvog