discussion question about auditing 9

Paul Acres has approached your CPA firm with some questions. Paul Acres’ management has spoken with a bank about obtaining a loan to expand its operations. The bank has informed them that the bank will not make the requested loan unless the company submits financial statements. Further, the interest rate on the loan will depend on whether Paul Acres’ financial statements are prepared, compiled, reviewed, or audited by an independent auditor. Paul Acres’ management is not familiar with the differences between these four services and wonders why the interest rate charged on the loan would depend on the type of service they obtain from your CPA firm.

Describe for Paul Acres the differences between preparation, compilation, review, and audit engagements. Be sure to include the level of assurance provided by each one as part of your explanation.


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