In reference of SSARS (Statements on Standards for Accounting and Review Services), review services are CPAs to gather limited assurance that no “material modifications” should be adjusted to the financial statements in order for the statements to be in conformity with the applicable reporting framework. The framework can be either GAAP (Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards), or tax-basis. Because of limited assurance, the CPAs must be independent during engagement.
To obtain review evidence, there are mainly five procedures: first, CPAs need to obtain a written understanding with their clients about the nature and limitations of a review engagement through an engagement letter. Second, CPAs should familiarize themselves with the client’s business model, accounting principles of the company’s industry, and the client’s organization and operations. Third, CPAs need to inquire from the client about the company’s accounting system and meet with company’s shareholders, directors, and important committees. Then, CPAs should perform analytic procedures. Finally, CPAs should acquire written representations from the client, which impresses upon management its primary responsibility for the financial statements.
In a Review engagement , the CPA gathers limited evidence to assess the risk of material misstatement. Therefore, when CPAs perform a review engagement, every page of the financial statement should include an indication- “See independent accountant’s review report”. In addition, review services do not need to consider the client’s internal control. Therefore, a review engagement does not need to express an opinion of internal control. Moreover, unlike the unmodified opinion expressed by an audit engagement, a phrase- “we are not aware of any material modifications” will be issued by a review engagement.
Even though the assurance presented is less than in an audit engagement, a review engagement still needs CPAs to perform professional judgment and identify any circumstances that may trigger the financial statements to be materially misstated.
by :Maohong Wang
Maohong Wang-Master's Degree in Accounting Student at Naveen Jindal School of Management
and is in the 2017 mentoring program at IAA CPA FIRM PLLC