Audit vs Review

Definition: An audit gives reasonable assurance via substantive testing; an independent review gives limited assurance via enquiry and analytics.

Core idea

Both an audit and an independent review are assurance engagements — a qualified practitioner issues an opinion on whether financial statements are free from material misstatement. The difference lies in the level of assurance given and the procedures used to obtain it. Auditors design and perform substantive tests (confirmations, physical counts, detailed vouching) to reduce risk to an acceptably low level, enabling a reasonable assurance opinion. Reviewers rely primarily on enquiry of management and analytical procedures (comparing trends, ratios, relationships) to reach a limited assurance conclusion — sufficient to say nothing came to the reviewer's attention, but not enough to express a positive opinion.

Key principles

• Reasonable assurance (audit): high but not absolute; the auditor gathers sufficient appropriate audit evidence to support a positive opinion that the financials are or are not fairly presented. Governed by ISA (International Standards on Auditing).
• Limited assurance (review): a lower bar; the reviewer issues a negative assurance conclusion ("nothing has come to our attention…"). Governed by ISRE 2400 (or its local equivalent).
• Materiality: both engagements set a materiality threshold; items below it are not individually investigated.
• Independence: both require the practitioner to be independent of the client; the concept of independence is the same even though the procedures differ.
• Who requires what: listed companies and large public-interest entities typically require a full audit by statute. Smaller companies may opt for an independent review, which is less costly and disruptive.
• Scope limitations: if the auditor cannot obtain sufficient evidence, they qualify or disclaim their opinion. A reviewer with an equivalent scope restriction similarly modifies their conclusion.

Examples

• A JSE-listed company undergoes an annual audit — the auditors confirm bank balances, attend the inventory count, and test a sample of revenue transactions before issuing an unqualified opinion.
• A private SME that falls below the statutory audit threshold engages a reviewer, who sends management a detailed questionnaire and performs ratio analysis of the trial balance before issuing a limited assurance conclusion.
• In Draftworx, independent review engagements are supported within the platform: analytical procedures are structured, management responses are captured, and the reviewers' report is generated.

Connections

• Reporting Frameworks — the applicable framework determines required disclosures in audited or reviewed financials and influences which assurance standard applies

Source

General accounting knowledge; ISA 200; ISRE 2400.