A chartered accountant’s skill is vital for the prosperity of an organization. It is necessary for businesses to consult accounting firms frequently to evaluate the establishment’s performance. Professional accountants offer services such as business planning, calculation of tax payments due, prepare and audit financial statements. Accountants refer to the services they offer as engagements. There are three engagements related to financial statements of an organization:
• Review engagements
• Audit engagements
• Compilation engagements
It is imperative that businesses understand the work performed by chartered accountants.
Audits are necessary to provide an organization’s financial statement users with an opinion on whether the statements followed proper accounting methods. Businesses report to shareholders, governments, and creditors through audited financial statements. Legislation in Canada stipulates that limited corporations should prepare financial statements for audit by qualified independent accounting firms.
Creation of financial reports is the sole responsibility of companies’ management. The auditor’s responsibility is to provide an opinion on the fairness of the statements. Auditors employ such activities as evaluate the firm’s structure of internal control, inspection of documents, and observation to gather necessary data to establish whether the financial statements accurately reflect the company’s financial position.
Review engagements are performed to give assurance that there are no modifications that should be made to the financial reports to align them with financial reporting regulations. A review is different from an audit. Review engagements provide little assurance to the user of financial reports. The degree of assurance from a review is expressed as either:
• Negative assurance; in this case, nothing came to the auditor’s attention that would indicate that the financial statements have not followed accounting principles.
• Reservation; the auditor has to provide an appropriate disclosure with details for the reservation.
In performing a review, a chartered accountant would only inquire on matters such as accounting practices employed by the organization and the management responsibility.
A compilation engagement aims to assist the management in presenting financial data in the form of statements. Compilation engagements do not provide assurance that the statements have conformed to accepted accounting principles. Compilation requires the accountant to gain knowledge of the business including the financial accounting systems applied and prepare the financial information as financial statements. Compilation engagements do not require the auditor to provide an opinion on the accuracy of the statements presented.
While independence is paramount in audit and review engagements, accountants do not have to be independent of the business in question to perform a compilation engagement.
Professional accountants offer many services other than audit, review and compilation engagements. Different businesses need accounting services for different reasons. It is crucial to understand the dynamics of each level of service while seeking assistance.