In reality, audits, reviews, and compilations serve very different purposes<\/strong>, involve very different responsibilities<\/strong>, and provide very different levels of assurance<\/strong>. Choosing the wrong one can lead to compliance issues, investor problems, or false confidence<\/strong>.<\/p>\n This article explains what each engagement really means<\/strong>, what SMEs often get wrong, and how to choose the right one in Singapore.<\/p>\n SMEs often assume:<\/p>\n Audit = expensive but safer<\/p>\n<\/li>\n Review = lighter audit<\/p>\n<\/li>\n Compilation = basic accounting<\/p>\n<\/li>\n<\/ul>\n While not entirely wrong, these assumptions miss critical details about assurance, responsibility, and regulatory use<\/strong>.<\/p>\n In Singapore, misunderstanding these differences can affect:<\/p>\n Statutory compliance<\/p>\n<\/li>\n Bank financing<\/p>\n<\/li>\n Investor trust<\/p>\n<\/li>\n Director responsibility<\/p>\n<\/li>\n<\/ul>\n An audit<\/strong> provides the highest level of assurance<\/strong> on financial statements.<\/p>\n Auditors:<\/p>\n Independently examine financial records<\/p>\n<\/li>\n Test transactions and controls<\/p>\n<\/li>\n Verify balances with third parties<\/p>\n<\/li>\n Assess accounting judgments<\/p>\n<\/li>\n<\/ul>\n At the end, auditors express an opinion on whether the financial statements give a true and fair view<\/strong>.<\/p>\n Audits are regulated and governed by standards enforced by the Accounting and Corporate Regulatory Authority<\/span><\/span>.<\/p>\n In Singapore, audits are typically required when:<\/p>\n A company does not<\/strong> qualify for audit exemption<\/p>\n<\/li>\n Banks or investors require audited accounts<\/p>\n<\/li>\n Group reporting or consolidation applies<\/p>\n<\/li>\n<\/ul>\n A review<\/strong> provides limited assurance<\/strong>, not reasonable assurance.<\/p>\n Review engagements typically include:<\/p>\n Analytical procedures<\/p>\n<\/li>\n Enquiries with management<\/p>\n<\/li>\n High-level financial assessment<\/p>\n<\/li>\n<\/ul>\n Importantly:<\/p>\n No detailed testing<\/p>\n<\/li>\n No third-party confirmations<\/p>\n<\/li>\n No internal control testing<\/p>\n<\/li>\n<\/ul>\n The conclusion is phrased negatively, such as:<\/p>\n \u201cNothing has come to our attention\u2026\u201d<\/p>\n<\/blockquote>\n This is not an audit opinion<\/strong>.<\/p>\n SMEs may use reviews when:<\/p>\n Banks request some comfort, but not a full audit<\/p>\n<\/li>\n Overseas parent companies need basic assurance<\/p>\n<\/li>\n Cost and time constraints exist<\/p>\n<\/li>\n<\/ul>\n However, reviews are not a substitute for statutory audits<\/strong> where audits are required by law.<\/p>\n A compilation<\/strong> provides no assurance at all<\/strong>.<\/p>\n In a compilation:<\/p>\n The accountant prepares financial statements<\/p>\n<\/li>\n Information is based solely on management input<\/p>\n<\/li>\n No verification or assurance is provided<\/p>\n<\/li>\n<\/ul>\n The accountant does not<\/strong>:<\/p>\n Check accuracy<\/p>\n<\/li>\n Test balances<\/p>\n<\/li>\n Express any opinion<\/p>\n<\/li>\n<\/ul>\n A compilation report simply states that no assurance is given<\/strong>.<\/p>\n Compilation is suitable when:<\/p>\n Financial statements are for internal use<\/strong><\/p>\n<\/li>\n Owners understand and accept full responsibility<\/p>\n<\/li>\n No third party relies on the statements<\/p>\n<\/li>\n<\/ul>\n It is not suitable<\/strong> for:<\/p>\n Statutory filing where audit is required<\/p>\n<\/li>\n Bank submissions (unless explicitly accepted)<\/p>\n<\/li>\n Investor due diligence<\/p>\n<\/li>\n<\/ul>\n A review does not<\/strong> detect fraud or significant errors. Relying on it as an audit replacement creates risk.<\/p>\n Banks, investors, and regulators often reject compiled accounts. SMEs waste time and money redoing work later.<\/p>\n Lower-cost engagements offer less assurance. Cost savings can be quickly erased by compliance issues or financing delays.<\/p>\n In reviews and compilations, management bears full responsibility<\/strong>. Many directors underestimate this risk.<\/p>\n Audit exemption rules are strict. Filing the wrong type of financial statements can lead to issues with the Inland Revenue Authority of Singapore<\/span><\/span> or other stakeholders.<\/p>\n SMEs should consider:<\/p>\n
\nWhy SMEs Get Confused<\/h5>\n
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\nWhat Is an Audit?<\/h5>\n
What an Audit Actually Involves<\/h3>\n
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\nWhen an Audit Is Required<\/h5>\n
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\nWhat Is a Review?<\/h5>\n
What a Review Involves<\/h3>\n
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\nWhen a Review Is Commonly Used<\/h5>\n
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\nWhat Is a Compilation?<\/h5>\n
What a Compilation Really Means<\/h3>\n
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\nWhen Compilation Is Appropriate<\/h5>\n
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\nAudit vs Review vs Compilation: Side-by-Side Comparison<\/h5>\n
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\n \nArea<\/th>\n Audit<\/th>\n Review<\/th>\n Compilation<\/th>\n<\/tr>\n<\/thead>\n \n Level of assurance<\/td>\n High<\/td>\n Limited<\/td>\n None<\/td>\n<\/tr>\n \n Testing performed<\/td>\n Extensive<\/td>\n Minimal<\/td>\n None<\/td>\n<\/tr>\n \n Third-party checks<\/td>\n Yes<\/td>\n No<\/td>\n No<\/td>\n<\/tr>\n \n Opinion provided<\/td>\n Yes<\/td>\n Limited<\/td>\n No<\/td>\n<\/tr>\n \n Suitable for banks\/investors<\/td>\n Yes<\/td>\n Sometimes<\/td>\n Rarely<\/td>\n<\/tr>\n \n Statutory compliance<\/td>\n Yes<\/td>\n No<\/td>\n No<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n
\nCommon Mistakes SMEs Make<\/h5>\n
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\n\u274c Mistake 1: Thinking a Review Is a \u201cLight Audit\u201d<\/h3>\n
\n\u274c Mistake 2: Using Compiled Accounts for External Purposes<\/h3>\n
\n\u274c Mistake 3: Choosing Based Only on Cost<\/h3>\n
\n\u274c Mistake 4: Assuming Accountants Share Responsibility<\/h3>\n
\n\u274c Mistake 5: Ignoring Regulatory Requirements<\/h3>\n
\nHow SMEs Should Choose the Right Engagement<\/h5>\n