An audit requires examining, on a test basis, evidence supporting the amounts and disclosures on the financial statements. An audit also involves an examination of the accounting principles and estimates used by management, as well as the internal controls in place. Lastly, an audit involves a critical examination of the overall financial statement presentation. The objective of an audit is to provide an opinion as to whether the financial statements are free from material misstatement and presented in accordance with the relevant accounting framework, such as Canadian Accounting Standards for Private Enterprises (ASPE), Canadian Accounting Standards for Not-for-profit Organizations (ASNPO), or the International Financial Reporting Standards (IFRS).
Why do you need an audit? An audit provides external users with the highest level of assurance, and as such may be required by a bank, government agency, a shareholder or other stakeholder.
A review provides some assurance for corporations that are not required to file audited financial statements. Here, the objective is to ascertain whether the financial statements are plausible. This is done through analytical procedures, enquiry, discussion and also an assessment of the internal control environment. No opinion is provided in a review engagement, however, negative assurance is provided. An unqualified report will state that nothing has come to the accountants’ attention that would lead them to believe that the financial statements are not, in all material respects, in accordance with the relevant accounting framework, such as ASPE, ASNPO or IFRS.
Why do you need a review? A review is cost-effective and is often used as a middle ground by external users who want a certain level of assurance that the financial statements are free from material misstatement, without subjecting the entity to an audit engagement.
A Notice to Reader (NTR) is a report that accompanies a set of financial statements, however, unlike an audit or review, no assurance is provided in a NTR. A NTR is often used by most small and owner managed businesses and corporations as it meets most management needs and is often sufficiently for certain external users as well.
Why do you need a NTR? This type of engagement can be effective for a business owner to gauge their company’s performance, to assist in corporate income tax return filing, or for other regulatory requirements, and is also the most cost-effective report.
A Pro-Forma is a set of financial statements that are based on estimates and assumptions provided by management. They are often used to secure financing in situations where formal financial statements may not yet be available. This is often the case with new corporations, or pre-start up businesses who are in the planning stage.