Which type of financial statement would include test audits?

• A. Audited financial statements
• B. Compiled financial statements
• C. Reviewed financial statements
• D. Forecasts

Answer: (A)

The main idea is about the level of assurance and the procedures performed. In an audit engagement, the auditor tests evidence—substantive tests of transactions and balances and testing of controls—to form an opinion on whether the financial statements are presented fairly. That testing is what characterizes audited financial statements; they come with an auditor’s opinion and explicit assurance based on those procedures. Compiled financial statements are just organized from the client’s data with no audit procedures or assurance. Reviewed statements involve some procedures, mainly inquiries and analytical procedures, but they only provide limited assurance and do not include the in-depth testing seen in an audit. Forecasts are projections, not historical financial statements, and they aren’t the subject of an audit in the same way.