Audit vs Review vs Compilation: What SMEs Often Get Wrong

Audit vs Review vs Compilation: What SMEs Often Get Wrong

Many SMEs struggle to understand the difference between audit vs review vs compilation. These terms sound similar, are often used interchangeably, and are sometimes misunderstood as simply “levels of checking.”

In reality, audits, reviews, and compilations serve very different purposes, involve very different responsibilities, and provide very different levels of assurance. Choosing the wrong one can lead to compliance issues, investor problems, or false confidence.

This article explains what each engagement really means, what SMEs often get wrong, and how to choose the right one in Singapore.

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Why SMEs Get Confused

SMEs often assume:

• Audit = expensive but safer

• Review = lighter audit

• Compilation = basic accounting

While not entirely wrong, these assumptions miss critical details about assurance, responsibility, and regulatory use.

In Singapore, misunderstanding these differences can affect:

• Statutory compliance

• Bank financing

• Investor trust

• Director responsibility

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What Is an Audit?

An audit provides the highest level of assurance on financial statements.

What an Audit Actually Involves

Auditors:

• Independently examine financial records

• Test transactions and controls

• Verify balances with third parties

• Assess accounting judgments

At the end, auditors express an opinion on whether the financial statements give a true and fair view.

Audits are regulated and governed by standards enforced by the Accounting and Corporate Regulatory Authority.

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When an Audit Is Required

In Singapore, audits are typically required when:

• A company does not qualify for audit exemption

• Banks or investors require audited accounts

• Group reporting or consolidation applies

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What Is a Review?

A review provides limited assurance, not reasonable assurance.

What a Review Involves

Review engagements typically include:

• Analytical procedures

• Enquiries with management

• High-level financial assessment

Importantly:

• No detailed testing

• No third-party confirmations

• No internal control testing

The conclusion is phrased negatively, such as:

“Nothing has come to our attention…”

This is not an audit opinion.

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When a Review Is Commonly Used

SMEs may use reviews when:

• Banks request some comfort, but not a full audit

• Overseas parent companies need basic assurance

• Cost and time constraints exist

However, reviews are not a substitute for statutory audits where audits are required by law.

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What Is a Compilation?

A compilation provides no assurance at all.

What a Compilation Really Means

In a compilation:

• The accountant prepares financial statements

• Information is based solely on management input

• No verification or assurance is provided

The accountant does not:

• Check accuracy

• Test balances

• Express any opinion

A compilation report simply states that no assurance is given.

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When Compilation Is Appropriate

Compilation is suitable when:

• Financial statements are for internal use

• Owners understand and accept full responsibility

• No third party relies on the statements

It is not suitable for:

• Statutory filing where audit is required

• Bank submissions (unless explicitly accepted)

• Investor due diligence

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Audit vs Review vs Compilation: Side-by-Side Comparison

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Common Mistakes SMEs Make

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❌ Mistake 1: Thinking a Review Is a “Light Audit”

A review does not detect fraud or significant errors. Relying on it as an audit replacement creates risk.

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❌ Mistake 2: Using Compiled Accounts for External Purposes

Banks, investors, and regulators often reject compiled accounts. SMEs waste time and money redoing work later.

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❌ Mistake 3: Choosing Based Only on Cost

Lower-cost engagements offer less assurance. Cost savings can be quickly erased by compliance issues or financing delays.

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❌ Mistake 4: Assuming Accountants Share Responsibility

In reviews and compilations, management bears full responsibility. Many directors underestimate this risk.

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❌ Mistake 5: Ignoring Regulatory Requirements

Audit exemption rules are strict. Filing the wrong type of financial statements can lead to issues with the Inland Revenue Authority of Singapore or other stakeholders.

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How SMEs Should Choose the Right Engagement

SMEs should consider:

• Is an audit legally required?

• Who will rely on these financial statements?

• What level of assurance is actually needed?

• Are directors comfortable bearing full responsibility?

Choosing the right engagement is about risk management, not just compliance.

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A Practical Rule of Thumb

• 审计 → When compliance, investors, or banks require confidence

• Review → When limited comfort is acceptable and permitted

• Compilation → When statements are for internal use only

When in doubt, err on the side of clarity and defensibility.

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Final Thoughts

The difference between audit vs review vs compilation is not technical detail — it directly affects trust, compliance, and director exposure.

SMEs that understand these differences make better decisions, avoid rework, and protect themselves from unnecessary risk. SMEs that misunderstand them often pay more later.

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How uSafe Can Help

uSafe advises SMEs on:

• Audit exemption assessment

• Choosing the right engagement type

• Pre-audit readiness and clean-ups

• Liaison with auditors and banks

If you are unsure which engagement applies to your business, speak with us before committing — the right choice saves time, cost, and stress.

Sources: https://www.acra.gov.sg/