Financial statements can be immensely helpful to businesses, enabling them to guide stakeholders through the complexities of making finance-related decisions.
Review engagements are a particularly important type of financial statement service, that involve a Chartered Professional Accountant, or CPA, carrying out a number of analytical procedures and queries to give assurance that no misstatements are present in the statement.
While this service is only able to offer a moderate assurance level, and isn’t as detailed and thorough as an audit, a review engagement is still considered an in-depth service.
What is the purpose of a review engagement?
Serving a variety of purposes, review engagements are typically used when a business needs to give lenders, potential investors, tax authorities, and any other external stakeholders, a moderate assurance level. Often, they help to cement the businesses actual financial position, with the position management perceives it to have.
While it’s true that review engagements don’t offer absolute assurance, they still offer a higher level than a compilation report, which helps to give stakeholders the confidence they need to trust the way in which a business reports its finances.
The most important aspect of a review engagement, is that it provides interested parties with the assurance (albeit limited) that no requirements are necessary for material modifications to be made to the financial statements, to make them compliant with the relevant reporting framework. Ultimately, this makes a companies financial statements more credible, and more useful to stakeholders.
Must review engagements follow a specific format?
In short, yes. While less exhaustive than an audit, review engagements carried out in Canada must still abide by a number of professional standards, including the Accounting Standards for Private Enterprises (ASPE), and the Accounting Standards for Not-for-Profit Organizations (ASNPO). The needs and nature of the business in question, will determine which set of standards must be followed.
What role does a CPA have in review engagements?
When you engage with a CPA to assist you with a review engagement, their role is to carry out inquiries and perform an analysis of the financial statements, to give limited assurance that they don’t contain any material misstatements. During the process, the CPA will generate a sound understanding of the industry the business is involved in (and of the business itself), and get to grips with the internal controls. Once this has been done, they will apply their understanding to help them better assess the financial statement’s plausibility.
The role of a CPA is never to express any kind of opinion on the statements they have reviewed – as they might be expected to do during an audit – but with their expertise and knowledge, they can be immensely helpful in enabling businesses to spot any possible problems and opportunities, which can steer them in the direction of making sounder financial decisions in the future.
When it comes to offering stakeholders assurance regarding the financial statements of the business, a CPA review engagement can prove to be an invaluable tool, that while less extensive and detailed than an audit, still offers a balanced approach. A CPA can also help you determine which type of financial reporting service is right for your business, which can also prove invaluable.