An audit should be planned and performed (conducted”) with an attitude of professional skepticism” recognizing circumstances that may bring about material misstatement in the financial statements. A review is limited primarily to enquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit.
Ascertain accounting systems – auditors enquire into and ascertain the client’s system of accounting and internal controls in order to understand how accounting data is prepared and to gain an impression as to whether systems are reliable. Obtain management representations – The auditor asks management to confirm formally the truth and fairness of certain aspects of financial statements. A review eggagement enables the auditor to state whether anything has come to the auditor’s attention which causes the auditor to believe that the financial statements are not prepared in all material repects with the applicable financial reporting framework.
Reasonable assurance – in an audit engagement, the auditor provides a high, but not absolute, level of assurance, expressed positively in the audit report as reasonable assurance, that the information subject to audit (ie the financial statements)is free of material misstatement. Accounting principles when accepted by accountants all over the world are known as GAAP.
The main procedures involved comprise enquiries of management, analytical procedures (eg ratio anlysis, comparisons and trends analysis on total figurs rather than individual transactions), and comparison of financial statements with accounting records – without verification to underlying documentation. This standard requires that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free from material misstatement.