Organizations may seek independent work over financial or operational information for different reasons. One stakeholder may require an audit opinion on complete financial statements; another may need a limited assurance review; a third may want specific transactions checked and the factual results reported. These needs are not interchangeable.
Financial statement audits
An audit is designed to obtain reasonable assurance about whether financial statements as a whole are free from material misstatement. The auditor assesses risks, performs responsive procedures, evaluates evidence and expresses an opinion under the applicable professional standards.
Reasonable assurance is a high level of assurance, but not a guarantee. The scope is determined by the audit objective and relevant standards, rather than by a small list of preselected tests alone.
Review engagements
A review engagement provides limited assurance. In a financial statement review, the practitioner ordinarily relies primarily on inquiry and analytical procedures, supplemented where necessary. The conclusion is expressed in a form appropriate to the applicable review standards.
Because a review has a different objective and narrower extent of work, it does not provide the same level of assurance as an audit. Stakeholders should not interpret a reviewed set of statements as though it had been audited.
Agreed-upon procedures engagements
An agreed-upon procedures engagement takes a different approach. The engaging parties establish specific procedures to be performed over defined subject matter, such as transaction samples, account balances or supporting records. The practitioner performs those procedures and reports factual findings.
An agreed-upon procedures report does not express an audit opinion or assurance conclusion. Users are responsible for considering whether the agreed procedures and reported findings are sufficient for their purposes.
Selecting an appropriate engagement
The appropriate form depends on what users need to understand, the expectations of lenders or regulators, the nature of the information, the availability of suitable evidence and the intended use of the report.
A narrowly scoped procedure may answer a precise factual question without addressing the reliability of the broader financial statements. Conversely, an audit opinion on financial statements does not necessarily provide assurance on every operational claim made by an organization.
Clear engagement terms help prevent misunderstandings. Before work begins, the objectives, subject matter, reporting framework, intended users, level of assurance where applicable and limitations should be understood.