Financial Statement Engagement Types
In electing to enlist an accountant, your first question should be with regards to required services. Find below a list of various engagements, and select the one that is right for you.
Audit Engagements
The objective of an audit engagement is to enable an independent public accountant to form an opinion on the fairness of the client’s financial statements. This opinion is given in the form of a written report.
Audited financial statements are the accepted means by which most business corporations report to their shareholders, to bankers, to creditors and to government. Federal and provincial legislation in Canada generally requires a limited company to prepare annual financial statements for audit by a qualified independent auditor. Specific legislation may also require the auditor to provide other information in the report. Some companies may be exempted from the audit requirement if all shareholders agree, in writing, to waive the appointment of an auditor.
The audit consists of an examination of the accounting records and other evidence supporting those financial statements. Through the study and evaluation of the company’s system of internal control, and by inspection of documents, observation of assets, making of enquiries within and outside the company, and by other generally accepted auditing procedures, the auditor will gather the evidence necessary to determine whether the financial statements present a fair picture of the company’s financial position and its activities during the period being audited.
Review Engagements
The objective of a review engagement is to prepare and/or review financial statements to ascertain whether they are plausible, that is, worthy of belief.
Where an audit is not required or the shareholders have waived the appointment of an auditor, financial statements may be prepared on a review basis. Reviews lead to limited assurance that the financial information conforms to generally accepted accounting principles.
The degree of assurance is less than that resulting from an audit.
Compilation Engagements
The objective of a compilation engagement is to compile unaudited financial information into financial statement format, including schedules or reports based on information supplied by the client.
A compilation engagement is appropriate only where the client and other users do not need financial information that conforms in all respects to generally accepted accounting principles, audit or review assurance is not required, and all users of the information understand and accept its limitations.
Situations where a compilation may be applicable:
- internal use only statements for management
- restricted use statements — e.g. income tax
