Always Quick Manufacturing Limited is a small business that manufactures metal and plastic components for
a variety of industries. The bulk of the business is in the computing industry, although the occasional contract is for the automotive industry. Jose, the owner, would like to expand the business so that he can bid on larger contracts. This requires an investment of about $500,000 to finance capital assets and about $300,000 for a working capital loan. Jose has financed the business himself to this point, and has been given some alternatives by the bank. The alternatives pertain to which assets are used as guarantees, and whether Jose also guarantees the loans personally (as he has substantial personal assets). The bank also stated that if Jose personally guarantees the loan, the company will only require a review engagement, whereas if the loan is only secured by corporate assets, then an audit of the company will be required.
Jose understands the differences among the guarantees, but is not sure about the difference between a review and audit engagement. Presently, the company financial statements are prepared using a compilation engagement. Required Explain to Jose the difference among a compilation engagement, a review engagement, and an audit engagement.