Audit Assurance Engagements: A Fun(ish) Guide to Types of Financial Reviews

Hey guys, I'm here to talk to you about assurance engagements performed by auditors. I know, I know, it doesn't sound like the most exciting topic, but trust me, it's important stuff.

 

So let's start with the basics. Assurance engagements are basically when an auditor is hired to review and provide an opinion on financial statements or other types of information to ensure their accuracy and reliability. There are different types of assurance engagements depending on what needs to be reviewed and the level of assurance required.

 

Audit Engagement

First up, we have the audit engagement. This is the big kahuna of assurance engagements and it's what most people think of when they hear the word "auditor." When auditors perform an audit engagement, they review the financial statements of a company and provide an opinion on whether they are prepared in accordance with accounting principles and are free from material misstatement. Sounds riveting, I know.

 

Review Engagement

Next, we have a review engagement. This is like the little brother of an audit engagement. Instead of providing an opinion on the financial statements, the auditor provides a limited assurance report stating that the financial statements don't appear to have any major errors. It's akin to approving with a casual "seems legit" instead of making a solemn oath, "I swear on my grandma's grave, that this is precise."

Then we have compilations. This is like when you ask your friend who's good at math to help you balance your checkbook. The auditor puts together the financial statements for the company based on information provided by management. Please note, this is not an assurance engagement and does not provide any opinion on the accuracy of the financial statements.

 

Agreed-upon procedures engagements

Lastly, we have agreed-upon procedures engagements. This is when the auditor performs specific procedures that are agreed upon by both the auditor and the client. For example, a client may ask the auditor to review their accounts payable and ensure that they are being paid in a timely manner. The auditor would then provide a report stating whether the procedures were performed and what the results were.

 

Now, I know what you're thinking. "Wow, this all sounds amazing, sign me up!" But hold your horses, there's more. Within each type of assurance engagement, there are different levels of assurance that can be provided. You have your reasonable assurance, moderate assurance, and limited assurance. The higher the level of assurance, the more work the auditor has to do and, therefore, the more expensive the engagement is.

 

But why is all of this important? Well, assurance engagements provide confidence to the users of financial statements that the information they are relying on is accurate and reliable. This is important for investors, creditors, and even employees who want to ensure that their company is financially healthy.

 

So there you have it, folks. Assurance engagements may not be the most exciting topic, but they are vital to ensure the accuracy and reliability of financial information. And who knows, maybe one day you'll find yourself in an engagement with a hilarious auditor who will make you laugh so hard you forget you're talking about financial statements (okay, maybe that's a stretch, but a girl can dream).