Audit vs Review of Financial Statements

Financial statements are critical for demonstrating an organisation’s financial performance, position, and accountability. Whether you’re a business owner, charity trustee, investor, lender, or board member, reliable financial information is essential for making informed decisions. Understanding the differences between an Audit vs Review of Financial Statements is also important when assessing the reliability of these reports.

When organisations require independent verification of their financial statements, two common options are an audit and a review of financial statements. While both services provide assurance, they differ significantly in scope, procedures, cost, and the level of confidence they provide.

Many organisations struggle to determine which engagement is most appropriate for their needs. Choosing the wrong option can result in unnecessary costs or fail to meet stakeholder requirements.

In this guide, we’ll explain the differences between an audit and a review of financial statements, compare their benefits, and help you determine which service is right for your organisation.

What Is an Audit?

An audit is an independent examination of an organisation’s financial statements conducted by a qualified auditor. The objective is to determine whether the financial statements present a true and fair view of the organisation’s financial position and performance in accordance with the applicable accounting standards.

An audit provides reasonable assurance, which is a high level of assurance. To achieve this, auditors perform extensive procedures designed to gather sufficient evidence supporting the information presented in the financial statements.

The audit process involves examining supporting documentation, testing transactions, assessing internal controls, performing analytical procedures, and evaluating financial reporting risks. Based on this work, the auditor issues an independent audit opinion that provides stakeholders with confidence in the financial statements.

Because audits involve detailed verification procedures, they are often required by legislation, lenders, investors, funding providers, and governance bodies.

What Does an Auditor Typically Examine?

During an audit, the auditor may:

• Test selected financial transactions
• Review accounting records and supporting documentation
• Assess internal controls
• Confirm balances with third parties
• Evaluate accounting estimates
• Review revenue and expenditure recognition
• Perform analytical review procedures
• Assess fraud and financial reporting risks
• Evaluate financial statement disclosures
• Issue an independent audit opinion

The objective is to gather sufficient evidence to support a professional conclusion on the reliability of the financial statements.

What Is a Review of Financial Statements?

A review of financial statements is also an independent assurance engagement, but it provides a lower level of assurance than an audit.

During a review, the practitioner primarily performs enquiries and analytical procedures rather than extensive testing and verification. The objective is to determine whether anything has come to the practitioner’s attention that causes them to believe the financial statements are materially misstated.

Unlike an audit, a review does not involve detailed testing of transactions, extensive examination of supporting documents, or a comprehensive assessment of internal controls.

Because the scope is narrower, reviews generally require less time and cost than audits while still providing stakeholders with a level of independent assurance.

Reviews are commonly used by organisations that require assurance but do not need the higher level of scrutiny associated with a full audit.

What Does a Financial Statement Review Typically Involve?

A review engagement generally includes:

• Discussions with management
• Enquiries regarding financial reporting processes
• Analytical review of financial information
• Comparison of current and prior-year results
• Investigation of unusual fluctuations or trends
• Assessment of financial statement presentation
• Evaluation of information consistency
• Issuance of a review conclusion

A review does not typically involve transaction testing or third-party confirmations.

Why Understanding the Difference Matters

Many organisations assume that a review and an audit provide similar levels of assurance. While both services involve independent professionals examining financial statements, the work performed and the confidence provided differ significantly.

For example, a lender may accept reviewed financial statements for a smaller financing arrangement but require audited financial statements for a larger lending facility. Similarly, some charities and not-for-profit organisations may meet statutory review requirements while larger organisations may be required to obtain a full audit.

Understanding these differences helps organisations select the most appropriate engagement based on compliance requirements, stakeholder expectations, risk levels, and budget considerations.

Audit vs Review of Financial Statements: Quick Comparison

Feature	Audit	Review of Financial Statements
Purpose	Verify financial statements through extensive testing	Provide limited assurance through enquiry and analysis
Level of Assurance	Reasonable assurance	Limited assurance
Transaction Testing	Extensive	Generally not performed
Internal Control Assessment	Yes	Limited or none
Third-Party Confirmations	Often used	Rarely used
Evidence Gathering	Extensive	Limited
Audit Opinion Issued	Yes	No
Review Conclusion Issued	No	Yes
Cost	Higher	Lower
Time Required	Longer	Faster
Stakeholder Confidence	High	Moderate

The Biggest Difference: Level of Assurance

The most significant distinction between an audit and a review is the level of assurance provided.

Audit Provides Reasonable Assurance

An audit provides reasonable assurance that the financial statements are free from material misstatement. To reach this conclusion, auditors gather substantial evidence through testing, verification, and analysis.

Reasonable assurance is considered a high level of assurance and is often required when stakeholders need strong confidence in the reliability of financial information.

Review Provides Limited Assurance

A review provides limited assurance. Instead of confirming that financial statements are free from material misstatement, the practitioner concludes whether anything has come to their attention suggesting that the financial statements may be materially misstated.

Because fewer procedures are performed, the level of confidence provided is lower than that of an audit.

Understanding the Audit Process

The audit process follows a structured methodology designed to obtain sufficient evidence regarding the financial statements.

Key stages often include:

• Planning and risk assessment
• Understanding the organisation and its operations
• Evaluating internal controls
• Testing transactions and balances
• Reviewing supporting documentation
• Confirming information with external parties
• Performing analytical procedures
• Assessing financial statement disclosures
• Forming an audit opinion

The extensive nature of these procedures allows auditors to provide a high level of assurance.

Understanding the Review Process

A review engagement is generally less detailed and focuses on identifying issues through enquiry and analytical review.

The review process may include:

• Discussions with management
• Reviewing financial information for reasonableness
• Analysing trends and ratios
• Investigating unusual fluctuations
• Assessing consistency in reporting
• Reviewing financial statement presentation
• Issuing a review conclusion

Because detailed verification procedures are not performed, reviews can often be completed more efficiently than audits.

When Does Your Organisation Need an Audit?

An audit may be appropriate when:

• Legislation requires audited financial statements
• Lenders require audited reports
• Investors seek independent verification
• Grant providers require audited reporting
• The organisation has complex operations
• Significant financial risks exist
• Stakeholder confidence is a priority
• Strong governance oversight is required

In these situations, the higher level of assurance provided by an audit can help organisations meet stakeholder expectations and reporting obligations.

When Is a Review of Financial Statements Appropriate?

A review may be suitable when:

• Stakeholders require some assurance but not a full audit
• Legislation permits a review instead of an audit
• The organisation has relatively simple operations
• Cost considerations are important
• Management seeks independent financial reporting oversight
• Lenders accept reviewed financial statements
• Funding providers permit review engagements

For many medium-sized organisations, a review provides an effective balance between assurance and cost.

Benefits of an Audit

An audit offers several important advantages.

Key Benefits of an Audit

• Highest level of assurance available
• Increased stakeholder confidence
• Greater credibility of financial statements
• Improved governance and accountability
• Enhanced risk management
• Better internal control insights
• Stronger lender and investor confidence
• Greater acceptance by regulators and funding providers

These benefits make audits particularly valuable for organisations with significant reporting obligations or complex operations.

Benefits of a Review of Financial Statements

A review also provides meaningful benefits, particularly for organisations that do not require a full audit.

Key Benefits of a Review

• Lower cost than an audit
• Faster completion time
• Independent professional oversight
• Limited assurance for stakeholders
• Improved confidence in financial reporting
• Suitable for many medium-sized organisations
• Reduced compliance burden
• Useful governance support

Reviews can provide an efficient solution for organisations seeking assurance while managing costs.

How to Choose Between an Audit and a Review

Choosing the right engagement depends on several factors.

Consider the following questions:

• Is an audit legally required?
• What level of assurance do stakeholders expect?
• Do lenders require audited financial statements?
• Are investors involved?
• How complex are the organisation’s operations?
• What reporting risks exist?
• What budget is available for assurance services?
• Would limited assurance satisfy stakeholder requirements?

The answers can help determine whether an audit or review is the most appropriate choice.

Key Takeaway

The difference between an audit and a review of financial statements comes down to assurance, scope, and stakeholder requirements. An audit provides reasonable assurance through extensive testing and verification procedures, making it suitable for organisations that require a high level of confidence in their financial reporting. A review provides limited assurance through enquiries and analytical procedures, offering a more cost-effective alternative for organisations that do not require a full audit. Understanding these differences helps organisations choose the most appropriate engagement while balancing compliance, governance, and budget considerations.

Frequently Asked Questions

1. What is the main difference between an audit and a review of financial statements?

The primary difference is the level of assurance provided. An audit provides reasonable assurance through detailed testing and evidence gathering, while a review provides limited assurance through enquiries and analytical procedures. Because audits involve more extensive work, they offer a higher level of confidence in the financial statements than reviews.

2. Is a review cheaper than an audit?

Generally, yes. Reviews usually require fewer procedures and less time than audits, making them more cost-effective. However, the actual cost depends on factors such as the size of the organisation, complexity of operations, and reporting requirements. Organisations should consider stakeholder expectations as well as cost when deciding between the two services.

3. Can a review replace an audit?

In some circumstances, yes. Certain organisations may be permitted to obtain a review instead of an audit if legislation, funding agreements, lenders, or stakeholders allow it. However, where an audit is specifically required, a review will not satisfy the requirement. Organisations should always verify applicable obligations before choosing an engagement.

Connect with Aurora Financials

Determining whether your organisation requires an audit or a review of financial statements can be challenging. The right choice depends on your compliance obligations, stakeholder expectations, governance objectives, and reporting risks.

At Aurora Financials, we provide professional audit and assurance services tailored to the needs of businesses, charities, incorporated societies, and not-for-profit organisations throughout New Zealand. Our experienced team can help you understand your reporting obligations and choose the engagement that best supports your organisation’s goals.

Contact Aurora Financials today to discuss your audit and review requirements and discover how independent assurance can strengthen confidence in your financial reporting.