What is the difference between an audit, a review and a compilation?

Audit The highest level of assurance: testing records and evidence, third-party confirmations, and a signed opinion. This is the statutory requirement (ss.394, 405).

Review A lower, "limited assurance" engagement under HKSRE 2400, carried out by a practitioner who is not the company's auditor. The procedures do not provide all the evidence an audit would, and the conclusion is in negative form: nothing has come to the practitioner's attention that causes belief the statements are not prepared, in all material respects, under the framework. Often used for interim reports or lender requests.

Compilation Under HKSRS 4410 the accountant uses accounting expertise to collect, classify and summarise information you supply, without testing what lies behind it. No assurance is given and no opinion is expressed. Independence is not required, but any lack of it must be stated in the accountant's report.

Which are acceptable for legal purposes?

• Company law: audit, unless the company is dormant under s.5 and s.447.
• IRD: audited statements are expected with the return for companies with gross income, except dormant companies and a few cases.
• Neither a review nor a compilation (nor management accounts) replaces a statutory audit.

Where reviews and compilations help A bank, investor or manager may want interim numbers; a review or compilation is cheaper and faster, but only as an extra.

HKSRE 2400 (reviews) and HKSRS 4410 (compilations) have been revised by HKICPA since their first issue, so your accountant will apply the edition in force.