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.

(Cross-post from my other blog, Nonprofit Update.)

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.

That is the word picture provided by Mr. Michael Glynn, CPA, at the 2013 Accounting and Auditing Conference presented by CalCPA on October 22, 2013.  With his knowledge, I’d like to share and expand his word picture. Mr. Glynn is a Senior Technical Manager at the AICPA. Any comments from him are his personal opinion. Any revisions to what he said or errors in this post are from me.

Review

So if you were providing a review at the football stadium, you would again receive the ball at your 20-yard line. After a series of advances by run and pass, you would get to the other side’s 40- or 35-yard line. Out of touchdown range and maybe at the edge of field goal range.

Those advances down the field would represent gathering evidence to provide you limited assurance to support your accountant’s report.

Compilation

So if you were providing a compilation at the football stadium, you would again start at your 20-yard line, right?

Wrong.

You wouldn’t be on the field.

You wouldn’t even be inside the stadium.

You would be out in the parking lot eating a yummy burger with all the fixings fresh off the grill. You would not be advancing the ball down the field. Remember, you are outside the stadium.

You are neither advancing the ball in the football game nor gathering any evidence to provide assurance before you issue your compilation report.

Preparation report

There is a new level of service that is described in the exposure drafts that will be announced in the morning. It is called preparation of financial statements.

Other discussions will describe this new thing. For the moment, I want to extend Mr. Glynn’s illustration to this new service.

So if you were only preparing financial statements instead of providing a compilation at the football field would you be on the field?

No.

Would you be in the parking lot enjoying the grilled food at the tailgate party?

No.

You would be in your driveway putting beach chairs in the trunk of your car.

Not only are you not gathering evidence to support your report, you aren’t anywhere near the football stadium You are not a part of the event.

Sports wrapup

Audits and reviews are assurance engagements. They get you on the field advancing the ball. Or in professional terms, you are gathering assurance for your reporting.

So there you have it.  Audits, reviews, compilations, and preparing a report are to CPA’s work like advancing the football to the 10-yard line, only the 35-yard line, eating a burger in the parking lot, and going to the beach are to a football game.

What do you think? Does that help explain the differences?