Early CPA

Comparison of Various Types of Financial Statement Engagements (a,b)

	Description	Compilation Engagement (c)	Review Engagement (d)	Audit Engagement
1.	Level of assurance	No assurance as to GAAP	Limited assurance as to GAAP	Statements are fairly presented in accordance with GAAP
2.	Entities covered	Nonpublic only	Nonpublic only	Public and nonpublic
3.	Knowledge of client's industry	Knowledge of the accounting principles and practices of the industry and general understanding of the clients business	Knowledge same as compilation plus an increased understanding of the client's business	Extensive knowledge of the economy, the relevant industry, and the client's business [SAS No.22]
4.	Inquiry procedures required	Inquires not required unless information supplied by the client is questionable	Inquiry and analytical procedures required plus additional procedures if the information appears questionable	Inquiry, analytical procedures [SAS 56], and other audit procedures
5.	GAAP disclosures omitted	Substantially all disclosures required by GAAP may be omitted, without restriction in use [Exception, see SSARS 3]	All disclosures required by GAAP must be included or report must be modified to include the disclosures	Inadequate disclosure requires qualified or adverse opinion
6.	Known departures from GAAP measurement	Disclosure required in modified compilation report [Exception, see SSARS 3]	Disclosure required in modified review report	Departure form GAAP requires qualified or adverse opinion
7.	Accountant's independence	Accountant does not have to be independent	Lack of independence precludes issuing review report	Nonpublic company- compilation report [SSARS No. 1] if not independent
8.	Obtain an understanding of internal control and assess control risk	Not required	Not required	Required by SAS Nos. 55 and 78
9.	Engagement letter	Recommended	Recommended	Recommended [SAS No. 83 requires the accountant to obtain an understanding with their client regarding the audit services to be performed and to document that understanding in the workpapers, preferably in the engagement letter]
10.	Representation letter	No mention	Required	Required by SAS No. 85

Notes:

a Adapted from Dan M. Guy, "Disclosure Needs in Financial Reporting for Closely Held Businesses," University of Alabama, 1978 Accounting Research Convocation.

b This does not cover engagements relating to personal financial statements, prospective financial information, or reviews of financial statements of public companies.

c Items 1 through 10 apply to all compiled financial statements expected to be used by a third party, as well as compiled management-use-only financial statements submitted to the client with a SSARS No. 1 report. Items 5 and 6 will not apply to compiled management-use-only financial statements in which the accountant chooses the communication alternative of an engagement letter in lieu of a SSARS No. 1 report. In addition, item 9, the Engagement Letter, is required, not recommended, for compiled management-use-only financial statements in which a SSARS No. 1 report is not issued.

d Excludes interim reviews of public companies. See SAS No. 71.