An accounting review and an audit may sound more or less like the same thing. However, there are a few important differences that separate the two. The number one difference has to do with scope.
An accounting review has a more narrowed focus. It’s meant to get an idea of how certain changes or products are affecting the finances of the company. It is an evaluation of a small section of the books to help decide if changes are necessary. An accounting review can also be used to find potential issues in the books that need to be fixed before they become real problems.
An audit, on the other hand, is more of a deep clean. During an audit, an accountant is going to be taking an in-depth look at the finances of the entire company for inaccuracies, omissions and outright fraud. Audits are often done for business tax purposes. Here’s a little chart to help you get a general idea of the differences.
|Definition||An evaluation of the books to determine if changes or adjustments are necessary.||A full examination of the books to determine fraud, inaccuracies and omissions.|
|Objective||Survey for action moving forward||Full scrutinization|
|Level of Assurance||Limited||High but not absolute|
|Cost||Relatively low||Often higher than a review|
Although an audit often requires more work than an accounting review, the amount of preparation required is frequently the same. Don’t be flabbergasted if your accounting review comes at a cost higher than originally thought of. Traditionally however, you should expect to pay more for an in-depth accounting audit.
What is an Audit?
An audit is one of the most comprehensive services an accountant can provide for your business. The goal of an audit is to make sure that a business or organization’s financial statements and records are an accurate representation of the actual transactions they take part in. The auditor will accomplish this by:
- Taking a deep dive into the financial statements
- Looking through financials
- Confirming the accuracy of these documents
- Performing interviews with management to gain an idea of how the company operates
- Observing physical inventory counts
- Getting in touch with vendors and customers to confirm accounts
An audit can be performed internally, by an external accounting firm, or, in some cases, by the IRS. Audits are an important function of running a business or organization. They provide credibility to your books and confidence to your shareholders that operations are being run as they should. They are also important to ensure that no laws are being broken, and that your taxes are all in order. If regular audits aren’t performed, your financial statements can become inaccurate, or even fraudulent.
If an accountant can complete their audit without issues, then they will provide a positive, or “unqualified” opinion stating that your books are being kept according to standard accounting guidelines and practices. This lets your shareholders and potential investors know that the company is operating in the manner in which it was intended.
A “qualified” statement from an accountant means that they didn’t discover any issues but were unable to confirm this fully due to limitations in scope or deviation from standard practices.
If your auditor issues an “adverse” opinion, that means your financial statements have been deemed incorrect or that significant deviations from standard practices have been discovered. That’s when you know you may have a problem, be sure to use frequent reviews and audits to ensure your accounting practices are consistent.
What is an Accounting Review?
A review is more of an overview of your business financials or an overview of a particular segment of your company or product. Rather than checking under every rock, an accountant conducting a review will mostly be looking into the financial practices of your business to see if there is anything out of the ordinary. A successful review is a confirmation that there are no significant issues with your financial statements. However, it doesn’t provide the same assurances as a full audit.
During a review, an accountant will conduct a number of checks of your financial practices. This can involve interviews of management and financial officers, investigation into procedures for recording financial information, and some analysis of the numbers in your books. Because the investigation is less thorough, positive reviews offer less assurance than an unqualified audit. Frequent reviews are still important, since the early detection of inaccuracies or poor practices can help you avoid adverse opinions from auditors in the future.
As a start-up and entrepreneur, it is highly recommended that you have a bookkeeper and accountant at the end of the year for tax filing. Start-ups need a lot of attention, as a business owner, you don’t want to spend your own time managing and maintaining your books so please consider adding an accounting professional to your team.