When it comes to assessing the financial health of an entity or organization, there are two main processes: a financial review and an audit. So what is a financial review vs. an audit? A financial review is often used as a first step to evaluate the accuracy and clarity of financial information presented. It may involve limited testing of specific information but does not include significant auditing.
On the other hand, an audit is an independent assessment of the accuracy and completeness of financial records. It involves extensive testing of underlying data and can assure stakeholders that the financial statements present an accurate and fair view of the entity’s position. Both exercises have their place in ensuring financial transparency and accountability but have essential differences. This article will discuss what a financial review and an audit are, how they differ, and when each should be used.
What is a Financial Review?
A financial review is a process of examining an entity’s financial statements and records to obtain a better understanding of its financial position. The aim is to identify potential areas of improvement in terms of overall economic performance and accounting procedures. This type of review tends to focus on the accuracy and clarity of the financial information and any inconsistencies or anomalies in the data. It does not involve significant auditing of the entity’s financial statements, although it may involve limited testing of certain information.
A financial review can provide insight into how well a business manages its finances and where changes could be made to improve efficiency and performance. It can also ensure that financial reports are accurate and up-to-date.
What is an Audit?
An audit is a more extensive review that includes an independent assessment of the accuracy and completeness of a business’s financial records. An auditor will evaluate the accounting methods and assess whether the financial statements present an accurate and fair view of the entity’s financial position. Audits involve extensive testing of the underlying data and are typically conducted by an external accounting firm or auditor. They generally require more time and resources than a financial review, as they involve detailed analysis and verification of many aspects of the business’s finances.
Audits are often mandated by law or regulation and are typically more expensive than financial reviews. The outcome of an audit is a statement of opinion on the accuracy and completeness of the financial statements. This can assure stakeholders that the financial information presented is reliable and valid.
Now that we have broken down what a financial review vs. an audit is, there’s a better understanding that a financial review and an audit are essential for ensuring financial transparency and accountability. They provide different levels of assurance regarding the accuracy and reliability of an entity’s financial information and should be used accordingly. Although Consult Your CFO doesn’t do financial reviews or audit, we can prepare your company for them! Call us today to have your company prepped and ready for a financial review or audit!