Audit, Review, or Agreed-Upon Procedures? Choosing the Right Assurance
In brief
•Not every engagement with an accountant gives the same level of confidence. Hong Kong recognises three main types — audit, review, and agreed-upon procedures — each governed by its own professional standard and offering a different level of assurance. This guide explains what each one delivers and how to choose the right engagement for your needs.
Choosing the Right Assurance Engagement
Assurance is the level of confidence that an independent professional accountant gives on financial information. The more assurance you want, the more work the accountant performs, and the more it costs. In Hong Kong, three engagement types are most common: an audit (the highest everyday level of assurance), a review (a moderate level), and agreed-upon procedures (no assurance, just factual findings). Each is governed by a different Hong Kong standard, and choosing the right one means you neither overpay for assurance you do not need nor fall short of what a bank, investor, or regulator requires.
What Is Assurance?
The Three Engagement Types
Audit — Reasonable (High) Assurance
An audit, performed under the Hong Kong Standards on Auditing (HKSA), provides reasonable assurance, a high but not absolute level. The auditor gathers sufficient evidence to express a positive opinion on whether the financial statements give a true and fair view. This is the level required for a statutory annual audit and the one banks and investors most often expect.
Review — Limited (Moderate) Assurance
A review, performed under the Hong Kong Standards on Review Engagements (HKSRE 2400 or 2410), provides limited assurance. The practitioner performs mainly enquiry and analytical procedures, which is less work than an audit, and expresses a conclusion in the negative form: that nothing has come to their attention to suggest the financial statements are not properly prepared. It costs less than an audit and suits situations where an audit is not legally required but some comfort is still wanted.
Agreed-Upon Procedures — No Assurance
In an agreed-upon procedures (AUP) engagement under HKSRS 4400, the accountant performs specific procedures that you and the accountant agree in advance, and reports the factual findings. The accountant expresses no opinion and no conclusion; you and the other users draw your own conclusions from the findings. AUP is ideal when only certain items need checking, such as verifying a grant claim, a revenue figure, or compliance with a loan covenant.
How to Choose the Right Engagement
1. Is It Legally Required?
Start here. Every company incorporated in Hong Kong must have a statutory audit each year, regardless of size, so for your annual financial statements the choice is already made: an audit is mandatory. A review or AUP cannot replace a statutory audit.
2. What Does the Other Party Need?
If the engagement is for a bank, investor, landlord, grant-giver, or head office, ask what level they require. Some accept a review; others insist on an audit; a grant body may only need agreed-upon procedures on the specific costs claimed.
3. How Much Comfort Is Worth Paying For?
More assurance means more work and higher fees. Where there is no legal or third-party requirement, match the engagement to the decision at stake: pay for an audit where the stakes are high, and consider a review or AUP where targeted, lower-cost comfort is enough.
At a Glance
| Engagement | Assurance level | What the report gives | Typical use |
|---|---|---|---|
| Audit | Reasonable (high) | A positive opinion on whether the financial statements are true and fair | Statutory annual audit; bank and investor requirements |
| Review | Limited (moderate) | A negative-form conclusion: nothing came to our attention | Interim figures; lower-cost comfort where no audit is required |
| Agreed-Upon Procedures | None | Factual findings only, with no opinion | Verifying specific items, e.g. a grant claim or revenue figure |
For most Hong Kong companies the annual statutory audit is non-negotiable. Reviews and agreed-upon procedures are not substitutes for it; they are tools for specific, additional needs such as interim reporting or verifying a particular figure.
Conclusion
Audit, review, and agreed-upon procedures sit on a spectrum of assurance: reasonable, limited, and none. An audit gives the most confidence and is mandatory for every Hong Kong company's annual financial statements; a review offers moderate, lower-cost comfort where an audit is not required; and agreed-upon procedures simply report factual findings on specific items. The key is to start with what is legally required, then match any additional engagement to what the recipient needs and the decision at stake. When in doubt, Olive & Vine can help you choose the right level of assurance for each situation.
Frequently Asked Questions
No. A statutory audit is a legal requirement for Hong Kong companies and provides reasonable assurance with a formal opinion. A review provides only limited assurance and cannot satisfy the audit requirement under the Companies Ordinance. A review is useful in addition to the audit, not instead of it, for example on interim figures.
In an audit the accountant expresses an opinion in positive form, for example that the financial statements give a true and fair view. In a review the accountant expresses a conclusion in negative form, that nothing came to their attention to suggest the statements are misstated. In agreed-upon procedures there is neither: only factual findings are reported.
AUP works well when only specific items need checking rather than the whole financial statements. Common examples include verifying the costs claimed under a government grant, confirming a revenue or sales figure for a counterparty, or checking compliance with a bank loan covenant. You agree the exact procedures in advance and receive a report of the factual findings.
Generally yes. A review involves mainly enquiry and analytical procedures and far less detailed testing than an audit, so it usually costs less. However, it also gives less assurance, and it cannot be used where an audit is legally required.
All three are performed by a practising certified public accountant in line with the relevant Hong Kong standard: HKSA for audits, HKSRE for reviews, and HKSRS 4400 for agreed-upon procedures. As with audits, independence and professional competence are essential.
This material has been prepared for general informational purposes only and is not intended to be relied upon as professional advice. Please consult a qualified professional for advice specific to your situation. For personalised assistance, please contact Olive & Vine.
