Audit and Assurance Practice Exam

The distinction between an audit and a review is essential for understanding the varying levels of assurance provided by each service. An audit offers reasonable assurance to stakeholders through extensive testing and verification of financial statements. This involves various procedures, including tests of transactions, internal controls, and detailed analysis, aimed at ensuring that the financial statements are free from material misstatement.

In contrast, a review delivers limited assurance. Instead of extensive testing, it primarily relies on analytical procedures and inquiries of management. The goal of a review is to identify any significant issues that might require further investigation, but it does not provide the same depth of assurance that an audit does.

This foundational difference—reasonable versus limited assurance—highlights the essential nature of audits in providing a higher level of confidence regarding the accuracy of financial statements compared to reviews. Understanding these distinctions is vital for determining the appropriate engagement based on the needs of users of financial statements.