Difference between Audit and Review

The terms Audit and review are commonly used in the accounting field. These terms may seem interchangeable but they refer to different services provided by a certified public accountant (CPA) firm related to examination or verification of the financial statements of a company. Let us see how audit differs from the review!

Audit:

The audit can be defined as an unbiased, official examination and verification of the financial statements, records, operations, physical inventory etc, of a company. An audit involves a thorough examination of the financial information of an organization and provides an opinion that the financial statements clearly present the financial position and results of the operations of the organization. The CPA firm which performs the audit is required to have an understanding of the internal controls of the company and the risk of fraud.

Generally, an audit can be of two types: Internal audit and external audit. The internal audit is performed by the employees of the company, whereas, the external audit is performed by the external auditor.

An audit provides the highest level of assurance that the financial statements are free from material misstatement. Audits are generally required by banks, creditors and investors that want assurance given by the auditor's opinion.

Review:

Review refers to the formal assessment of the financial statement and to introduce changes if required. It costs less than an audit so, it is often considered suitable for the new, growing companies with limited operating capital. A review provides limited assurance and is narrower in scope as compared to an audit. It does not involve an investigation of the company's internal control systems and the risk of fraud. It also does not test the accounting records as an audit. It is a suitable option for the companies that are happy with the limited assurance given in the report. To conduct a review, the auditor is not required to have a sound knowledge of the internal control system of the company, audit procedures and risk of fraud.

Based on the above information, some of the key differences between audit and review are as follows:

Audit	Review
It refers to an unbiased, official examination and verification of the financial statements, records, operations, physical inventory etc, of a company.	It refers to the formal assessment of the financial statement of a company and to introduce changes if required.
It provides the highest level of assurance and has a wider scope than the review.	It provides limited assurance and is narrower in scope than the audit.
It costs more than the review.	It costs less than an audit.
It needs to be carried out by a registered CPA firm.	It does not need to be carried out by a registered company auditor.
It gives more emphasis on the financial statements of the company.	It gives more emphasis on the inquiry of the management or staff and analytical review work.
Types: Internal, external, statutory, non-statutory, etc.	Types: System review, engagement review, firm-on-firm review, association review etc.