In addition to audit services, auditors provide other services. These can be classified as:

Assurance engagements

• Audits
• Reviews

Non-assurance Engagements

• Agreed upon Procedures
• Compilations

1.1.1    Reviews
The objective of a review of financial statements is to enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework. A similar objective applies to the review of financial or other
Information prepared in accordance with appropriate criteria.

A review comprises inquiry and analytical procedures, which are designed to review the reliability of an assertion that is the responsibility of one party for use by another party. While a review involves the application of audit skills and techniques and the gathering of evidence, it does not ordinarily involve an assessment of accounting and internal control systems, tests of records and of responses to inquiries by obtaining corroborating evidence through inspection, observation, confirmation and computation, which are procedures ordinarily performed during an audit.

Although the auditor attempts to become aware of all significant matters, the procedures of a review make the achievement of this objective less likely than in an audit engagement, thus the level of assurance provided in a review report is correspondingly less than that given in an audit report.


1.1.2 Agreed-upon Procedures
In an engagement to perform agreed-upon procedures, an auditor is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings. The recipients of the report must form their own conclusions from the report by the auditor. The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons
for the procedures, may misinterpret the results.

1.1.3 Compilations
In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to auditing expertise to collect, classify and summarize financial information. This ordinarily entails reducing detailed data to a manageable and understandable form without a requirement to test the assertions underlying that information. The procedures employed are not designed and do not enable the accountant to express any assurance on the financial information. However, users of the compiled financial information derive some benefit as a result of the accountant’s involvement because the service has been performed with due professional skill and care.

1.2 The Need for an Audit
If you take an example of a modern large liability company, we can clearly distinguish between the providers of funds and those who control those funds.  The providers of funds are the shareholders, creditors, and other third parties who have given loans to the company.  Those charged with the responsibility of controlling those funds are usually called directors and management.  We can also clearly see that the company has resources, (assets), and claims against those resources, (Liabilities and capital.)

Since the providers of funds are divorced from the control of those funds it would seem logical that the controllers should on a regular basis give a report to the providers of the funds on changes in the resources and claims.  This report of the controllers or directors according to the Kenya Companies Act should be in the form of annual accounts which consist of the balance sheet and the profit and loss account.  The accounting profession has extended the accounts by requiring that a Cash Flow Statement be also appended to the accounts as part of the accounts.  
The report of the directors in the form of accounts lacks credibility, in that:
    a)    It may contain errors;
    b)    It may fail to disclose frauds;
    c)    It could be misleading inadvertently;
    d)    It could be misleading deliberately;
    e)    It may fail to disclose all relevant information.

A further point to note is that modern companies can be very large with multi-national activities.  Preparing accounts for such a group becomes a very complex operation that could involve bringing together and summarising the accounts of subsidiaries with differing accounting systems.  All accounts are required to conform to very detailed and complex requirements of the Companies Act (CAP 486) and also to the requirements of the many International Financial Reporting Standards (IFRSs). Taking these points into consideration therefore, it becomes necessary that to give credibility to the accounts an independent qualified expert be appointed to objectively investigate the accounts and then report his findings to all interested parties, primarily the shareholders as required by the Companies Act, but also to other providers of funds and relevant regulatory authorities.

This independent expert is called the auditor.  His investigations constitute an audit and the report of his investigations an audit report.  Apart from resolving the problems of credibility an audit is essential to ensure that the requirements of the Companies Act and the International Financial Reporting Standards have been complied with.  The accounts are referred to as financial statements.  To summarise, we can identify the following parties as being interested in the financial statements.

    a)    The directors who produce them;
    b)    The shareholders to whom traditionally they are addressed;
    c)    Lenders and debenture holders;
    d)    Potential investors;
    e)    Employees;
    f)    Customers;
    g)    Suppliers;
    h)    Accountants;
    i)    Stock-brokers;
    j)    Credit rating agencies;
    k)    Financial Journalists;
    l)    Trade Unions;
    m)    Statisticians;
    n)    Competitors;
    o)    The Government, including the Tax Authorities and the;
    p)    Ministry of Finance for Economic Policy Decisions;
    q)    The general public.

All these people must be sure that the financial statements can be relied upon.

It should be noted that:

    1.    The auditor himself must be independent to have credibility.
    2.    He must have the primary objective of producing a report of his opinion on the truth and fairness of the accounts, so that any person reading and using them can believe in them.
    3.    Subsidiary objectives can be seen to be the detection of errors and fraud, the prevention of errors and fraud by the deterrent and moral effect of the audit and the ability to provide other benefits to his clients such as:

        •    Assistance with accounting;
        •    Systems;
        •    Taxation;
        •    Financial and other problems.

The Companies Act was designed to protect shareholders from directors hence the need for an audit as contained in the Companies Act mainly relates to limited liability companies, but as we shall see any organization can benefit from an audit.