What is an Audit Engagement?
An audit engagement builds upon the procedures performed in a review engagement. In addition to the analytical and discussion procedures, the CPA will perform what is referred to as substantive procedures. Substantive procedures are a more in depth examination of the materials that back-up the amounts that make up the financial statements, i.e. physically examining invoices and purchase orders, physically observing that inventory exists, etc. In addition to the substantive procedures, the accountant must obtain an understanding of the company’s internal controls, and evaluate them for any significant deficiencies.
The CPA, or Auditor, will provide an audit report once the engagement is complete. The level of assurance is much higher than a review engagement, that the company’s financial statements are free of material misstatement. Also included with an audit engagement is a Management Letter. This is a letter that is provided to management, along with the Audit Report, that provides an evaluation of the company’s internal controls, any recommendations to improve controls, and any other significant findings.