Paul company has approached your CPA firm with some questions. Paul's management has spoken with a bank about obtaining a loan to expand its operations. The bank has informed Paul that the bank will not make the requested loan unless the company submits financial statements. Further, the interest rate on the loan will depend on whether Paul's financial statements are compiled, reviewed, or audited by an independent auditor. Paul's management is not familiar with the differences between these three services and wonders why the interest rate charged on the loan would depend on the type of service they obtain from your CPA firm.

Describe for Paul Company the differences between compilation, review, and audit engagements. Be sure to include the level of assurance provided by each one as part of your explanation.