The three levels of engagement over a set of financial statements, what each actually provides, and how to work out which one your lender, regulator or shareholders require.
Businesses regularly ask for “audited accounts” when what they need is something else, and occasionally accept a compilation when a lender is going to insist on an audit. The three engagement types differ in the work performed, the assurance given, and the cost — and the difference is not cosmetic.
The three levels
| Engagement | What the practitioner does | What you get |
|---|---|---|
| Compilation | Assembles financial statements from information you provide, applying accounting expertise but performing no verification | Properly presented financial statements. No assurance at all as to whether they are free of material misstatement. |
| Review | Applies analytical procedures and enquiry, but does not test controls or obtain the corroborating evidence an audit requires | Limited (negative) assurance — nothing came to the practitioner’s attention suggesting material misstatement. |
| Audit | Plans by reference to risk, tests controls and balances, obtains external confirmations, attends inventory counts, evaluates estimates and going concern | Reasonable (positive) assurance — an opinion that the statements give a true and fair view, or present fairly, in all material respects. |
The distinction people miss is between negative and positive assurance. A review says nothing came to attention; an audit expresses an opinion. The evidential work required to move from the first to the second is substantial, and it is what the fee difference reflects.
Who decides which you need
Rarely you. In practice the requirement comes from one of four places:
- Legislation — company law and sector-specific statutes impose audit requirements on certain categories of entity.
- Your constitutive documents — many articles require audited accounts regardless of what the law demands.
- A contract — lenders, grant funders and donors routinely require audited financial statements as a condition, and some specify the standards to be applied.
- A regulator — financial services, insurance, and certain licensed sectors carry their own assurance requirements.
Check all four before commissioning work. Paying for an audit you did not need is wasteful; delivering a review where a funder required an audit means doing it again.
Who is permitted to perform the work
In Zimbabwe, public auditors are registered with the Public Accountants and Auditors Board (PAAB), the statutory body established to regulate the profession. Chartered accountants are members of professional bodies including the Institute of Chartered Accountants of Zimbabwe (ICAZ). The distinction matters: not every accountant may sign an audit report.
If an audit report is going to a lender, a regulator or a funder, confirm at the outset that the signing practitioner holds the registration required for that report to be accepted. This is a question worth asking directly and early.
Independence
An auditor must be independent of the entity audited, in fact and in appearance. That constrains what other services the same firm may provide — a firm generally cannot audit financial statements it prepared, or controls it designed, without breaching independence requirements.
For a smaller business this has a practical implication worth planning around: the accountant who does your bookkeeping may not be able to audit the resulting accounts. Establish that split before year end rather than during it.
What an audit does not do
- It is not a guarantee that the financial statements are free of all error. Assurance is reasonable, not absolute, and it is expressed in relation to materiality.
- It is not primarily a fraud investigation. Auditors consider fraud risk, but detecting a well-concealed fraud is not what an audit is designed to do — a forensic engagement is.
- It is not a valuation of the business, or an opinion on whether it is well run.
- It does not transfer responsibility for the financial statements. They remain the responsibility of the directors.
Where the concern is specifically that something has been misappropriated, an audit is the wrong instrument. The right one is a forensic engagement, scoped to the allegation and structured so that the evidence gathered will hold up in whatever forum it eventually reaches.
Topics
General guidance only
This article describes how the rules are structured. It is not advice on your circumstances, and tax legislation in Zimbabwe changes regularly. Speak to us — or to another qualified adviser — before acting on anything here.