Audited Financial Statements Vs Reviewed Financial Statements [A Detailed Discussion]

Audited Financial Statements

Reviewed Financial Statements

An audited financial statement is the most assured report prepared by an expert independent CPA.

It represents the maximum credibility of a business entity with no more material errors.

A responsible CPA must understand management’s internal controls, risk assessments, growth plans, amounts, and disclosures to develop a credible audited financial statement.

A reviewed financial statement describes businesses with limited assurances of no more material modifications.

A CPA usually doesn’t verify management’s amounts and disclosures to develop a financial review.

Moreover, understanding a business entity’s internal controls, business risks, and prospects isn’t mandatory for a CPA to prepare a reviewed financial statement.

Audited Financial Statement

Reviewed Financial Statement

• Obtaining reasonable assurance of financial statements.

• Analyzing business with no material misstatements.

• Understanding all material aspects of businesses compliant with financial reporting frameworks.

• Growing credibility with regulators, directors, managers, investors, and other stakeholders

• Finding strengths and weaknesses of a business entity with relevant recommendations.

• Obtaining moderate assurance of financial statements.

• Assessing the accounting framework adopted by business management.

• Evaluating the overall financial presentation prepared by a business or NPO entity.

• Understanding outside investors, trade creditors, and stakeholders compliant with AICPA financial standards

• Analyzing a business within a short time and with less investment.

Audited Financial Statement

Reviewed Financial Statement

Area of Aspects: An audited financial statement includes all aspects of a business entity: internal controls, management, investments, sales, profits, losses, threats, and prospects.

Legal Bindings: audited statements are driven and regulated by the relevant state rules and framework. It must be in line with legal procedures.

Dependable Data: An independent and registered CPA looks for dependable data to make the audited report credible to investors, lenders, creditors, banks, and state regulators.

Reliable Records: An auditor must compare and disclose an audited financial statement with all reliable records to gain maximum accuracy. It requires rigorous tests and evaluations of financial records and management policies.

Verification: Ascertaining proper nature, timing, and the procedure is crucial to verify all transactions and recordings in an audited financial report. It must be comprehensive to ensure the authenticity and validity of the statement.

Statement Aspects: A reviewed financial statement determines the plausibility of businesses based on financial records. However, it provides limited assurance, unlike an audited report.

Legal Justifications: Unlike an audited statement, the reviewed statement is free from rigid state rules and regulations. It is enough to go with the companies’ policies and interests.

Reasonable Evidence: An accountant must go through the related documents to point out the assurance of the statement. For example, engagement letters and management representation letters.

Review Engagement: There is no scope for material modification in the reviewed financial statement. It engages generally accepted accounting principles to present the statement.

Further Authentication: A reviewed financial statement may lead to a further audit if any business entity wants it. However, it is not a common phenomenon.

Audited Financial Statement

Reviewed Financial Statement

• An auditor must move with integrity and objectivity to prepare an audited financial statement.

• A business entity will offer enough freedom to an auditor to conduct the auditing job by justifying every aspect.

• Keeping confidentiality of sensitive business data is crucial here. None can breach business terms and conditions while auditing any business.

• Auditing financial statement requires expert knowledge and skill. Therefore, an auditor must be adept at dealing with fundamental frameworks like GAAP or IFRS.

• Planning is one of the core principles of a successful audit. And it must be a shared plan between an auditor and business management.

• Documentation denotes the depth of an audited financial statement that represents the strengths and weaknesses of a company or non-profit organization.

• Gathering audit evidence justifies the credibility and validity of an audited statement. Therefore, an auditor must gather enough evidence against internal and external data presented in the report.

• An auditor should care about the company’s deadline to prepare the auditing statement in response to maintaining the publishing date.

• An audited statement must be aligned with auditing rules and regulations adopted by the state authorities.

• Finally, an audited financial statement will demonstrate the maximum assurance of a business entity with recommendations for further improvement in weak areas.

• An accountant needs an engagement letter to develop a reviewed financial statement for a business entity.

• A management representation letter is mandatory for reviewing a company’s or non-financial organization’s financial statement.

• A review report must include a balance sheet and income statement of business management.

• Reviewing the statement of cash flow and note of disclosures is also important for a reviewed financial statement.

• An accountant will signify historical evidence and financial forecasts to prepare a reviewed financial statement for a business.

• Confidentiality is crucial for reviewing the financial statement of an entity.

• Data analysis must comply with the generally accepted accounting principles (GAAP) set by the financial accounting standard board (FASB).

• Communication is essential with the management to avoid any misstatements.

• No material modification is a core principle for a reviewed financial statement.

• Accountants will deter themselves from adding personal opinions to the reviewed financial statement of a business entity.

• No biasness is acceptable in data interpretation and representation.

• A reviewed financial statement may turn into an audited report in some cases.

Benefits

Drawbacks

1. Highest level of assurance

2. Larger in scope

3. Verified by ever-accepted standards

4. Highly valid and credible

5. No more errors and misstatements

6. Authentic financial insights

7. Representation of risks and potentials

8. Improvement of internal controls

9. Promotion of confidence

1. Expensive for small businesses

2. Legal bindings

3. Time-consuming

4. Unavailable expertise

5. Laborious

Benefits

Drawbacks

• Understanding business plausibility

• Cost-effective

• Target-oriented

• Investigating significant transactions

• Less laborious

• No legal bindings in most states

• Limited accuracy

• Issues of credibility

• Not suitable for big businesses

• Less responsive

• Not accepted everywhere