What type engagement required depends on the level of assurance users of the financial statements are seeking from the accountants. The further removed from a potential user of the financial statement is from the operations of the company the more assurance is usually sought.
Stockholders of a publicly traded company will require greater assurance than a hands-on proprietor seeking to learn more about his operating results. In addition, the magnitude of the dollar value of the financial statement will also dictate which sort of assurance is sought. A lender financing the purchase of a multi-million dollar investment will seek greater assurance that a bank seeking to lend a company fifty thousand dollars to purchase a fleet of vehicles.
Generally the greater the assurance, the greater the scope, the costlier an engagement , therefore, business owners have to make a decision as to which engagement suits their objectives. Audits provide greatest assurance, reviews provide limited assurance and compilations provide no assurance.