An audit is the highest level of assurance that can be provided on financial statements. An audit provides reasonable assurance that the entity’s financial statements present fairly its financial position, financial performance and cash flows in accordance with the applicable financial reporting framework.
Definition: Review Engagement1
A review engagement consists primarily of enquiry, analytical procedures and discussion. This type of engagement is useful when an organization does not need audited financial statements, but management or third parties (e.g., banks, granting agencies, etc.) want some assurance that the financial statements are plausible.
Audit vs. a Review Engagement1
The chartered accountant’s objective in an audit is to express an opinion on the financial statements; in a review engagement, the objective is to determine whether the financial statements are plausible in the circumstances. ‘Plausible’ is used in the sense of being worthy of belief, which is a moderate level of assurance.
Why is it important to have financial statements audited? An audit provides an opportunity to demonstrate financial accountability and transparency by allowing an external auditor to review the organization’s books and records to ensure that the information reported in the financial statements is accurate.2
Note: Provincial legislation may require nonprofit and charitable organizations with revenues under $1 million to have their financial statements audited by an independent licensed public accountant. Nonprofits and charities must ensure that they comply with all applicable legislation.
When reviewing the audited statements, boards of directors may wish to ask the following questions:
- Did the auditor require any significant changes to management’s year-end financial information before approving the financial statements and issuing their report?
- Did the auditor uncover any weaknesses in internal controls or accounting policies?
- Did the auditor have any concerns about the organization’s financial activities based on the financial statements?
- Did management make significant estimates in the financial statements that the auditor was concerned about?
- Did the auditor uncover any issues that would cause him or her to issue a qualified report?
- “Standards Program Definitions,” Imagine Canada, May 2011.
- “A Guide to Financial Statements of Not-for-Profit Organizations: Questions for Directors to Ask,” The Canadian Institute of Chartered Accountants, 2012.
Standards Reference Guide