A review engagement report is a document issued by a Certified Public Accountant (CPA) after conducting a review engagement. The purpose of a review engagement report is to provide a moderate level of assurance to external stakeholders, such as lenders, creditors, potential investors, and tax authorities, about the financial statements of a business.
Key Facts
- Purpose: The purpose of a review engagement report is to provide a moderate level of assurance to external stakeholders, such as lenders, creditors, potential investors, and tax authorities, about the financial statements of a business.
- Nature of the Service: In a review engagement, the CPA performs analytical procedures and inquiries to assess the plausibility and consistency of the financial statements. It is more in-depth than a compilation but less thorough than an audit.
- Level of Assurance: A review engagement report offers limited assurance, which means that the CPA is not aware of any material modifications that should be made to the financial statements for them to conform to the applicable financial reporting framework. It provides a higher level of assurance than compilations but less than audits.
- Report Content: The review engagement report includes a conclusion about whether anything has come to the CPA’s attention that causes them to believe the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework. However, it does not express an opinion on the financial statements.
- Professional Standards: Review engagements must adhere to specific professional standards, such as the Accounting Standards for Private Enterprises (ASPE) or the Accounting Standards for Not-for-Profit Organizations (ASNPO) in Canada, depending on the nature and needs of the business.
Nature of the Service
In a review engagement, the CPA performs analytical procedures and inquiries to assess the plausibility and consistency of the financial statements. It is more in-depth than a compilation but less thorough than an audit. The CPA will gain an understanding of the business, its accounting system, and its internal controls. They will also perform analytical procedures to identify any unusual or unexpected trends in the financial statements.
Level of Assurance
A review engagement report offers limited assurance, which means that the CPA is not aware of any material modifications that should be made to the financial statements for them to conform to the applicable financial reporting framework. It provides a higher level of assurance than compilations but less than audits. The CPA will express a conclusion about whether anything has come to their attention that causes them to believe that the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework. However, the CPA will not express an opinion on the financial statements.
Report Content
The review engagement report includes a conclusion about whether anything has come to the CPA’s attention that causes them to believe the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework. The report will also include a description of the procedures performed and the findings of the review.
Professional Standards
Review engagements must adhere to specific professional standards, such as the Accounting Standards for Private Enterprises (ASPE) or the Accounting Standards for Not-for-Profit Organizations (ASNPO) in Canada, depending on the nature and needs of the business. These standards provide guidance on the procedures that must be performed and the form and content of the review engagement report.
Conclusion
A review engagement report is a valuable tool for businesses that need to provide a moderate level of assurance about their financial statements to external stakeholders. It is a less costly and time-consuming alternative to an audit, but it still provides a level of assurance that is higher than a compilation.
References
- Demystifying Review Engagements: When & Why Does your Business Need These Statements?
- What are Review Engagements?
- Going concern guidance for review engagements
FAQs
What is the purpose of a review engagement report?
The purpose of a review engagement report is to provide a moderate level of assurance to external stakeholders about the financial statements of a business.
What is the difference between a review engagement and an audit?
A review engagement is less thorough than an audit and provides a lower level of assurance. In a review engagement, the CPA performs analytical procedures and inquiries to assess the plausibility and consistency of the financial statements, but does not express an opinion on the financial statements. In an audit, the CPA expresses an opinion on the financial statements after performing more extensive procedures.
What are the benefits of a review engagement?
Review engagements are less costly and time-consuming than audits, but still provide a level of assurance that is higher than a compilation. They can be useful for businesses that need to provide financial statements to external stakeholders, such as lenders or investors, but do not need the level of assurance provided by an audit.
What are the limitations of a review engagement?
Review engagements provide limited assurance, which means that the CPA is not able to detect all material misstatements in the financial statements. Additionally, review engagements do not include the level of testing of internal controls that is performed in an audit.
Who can perform a review engagement?
Review engagements can only be performed by a Certified Public Accountant (CPA).
What standards are used for review engagements?
Review engagements must be performed in accordance with the professional standards of the jurisdiction in which the engagement is conducted. In the United States, the standards for review engagements are set by the American Institute of Certified Public Accountants (AICPA).
What is included in a review engagement report?
A review engagement report includes a statement that the CPA has conducted a review of the financial statements, a description of the procedures performed, and a statement of the CPA’s findings.
What is the difference between a review engagement report and a compilation report?
A review engagement report provides a higher level of assurance than a compilation report. In a review engagement, the CPA performs analytical procedures and inquiries to assess the plausibility and consistency of the financial statements. In a compilation, the CPA simply presents the financial statements without expressing any assurance on them.