audit

I have a post at my other blog, Nonprofit Update which provides an analogy to illustrate the differences between the levels of attestation services provided by CPAs:

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

The analogy compares three different ways to figure out the quality of a car. I suggest each of those ways is similar to a level of service. Here’s the conclusion:

• Look at the car from across the street – very low cost for low quality information – compilation
• Look around inside in the car and drive it around the block – moderate cost for better information – review
• Have a mechanic work it over – highest cost in terms of time and money but the best information on the quality of the car – audit

Check out the full post for more details on the analogy.

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

The differences? …

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