A review engagement is an assurance engagement performed by a professional accountant in public practice. The objective of a review engagement is to provide limited assurance that the financial statements of an entity are plausible and free from material misstatement.
Unlike an audit engagement, a review engagement provides a lower level of assurance and does not involve a comprehensive examination of the entity’s financial statements.
Scope:
The scope of a review engagement is narrower than an audit engagement. The accountant performs analytical procedures and inquiries to obtain a limited assurance that the financial statements are free from material misstatement.
The accountant does not perform procedures to obtain evidence about the entity’s internal control or assess the risk of fraud.
Objective:
The objective of a review engagement is to provide limited assurance that the financial statements of an entity are plausible and free from material misstatement. The accountant performs analytical procedures and inquiries to obtain a moderate level of assurance that the financial statements are free from material misstatement.
However, the accountant does not formally provide a financial statement opinion. Instead, they provide a report that states whether, based on the procedures performed, they are aware of any material modifications that should be made to the financial statements for them to be by the applicable financial reporting framework.
Purpose:
The purpose of a review engagement is to provide users of the financial statements with the limited assurance that the financial statements are plausible and free from material misstatement.
The report issued by the accountant can provide users of the financial statements with the comfort that a professional accountant in public practice has reviewed the financial statements. This can be important for users, such as creditors, investors, and other stakeholders, who rely on financial statements to make decisions.
Auditing Standard Dealing Review Engagement.
Auditing standards guide the conduct of assurance engagements, including review engagements. The objective of a review engagement is to provide limited assurance that the financial statements of an entity are plausible and free from material misstatement. The following auditing standards apply to review engagements:
General Principles: The general principles of auditing standards apply to all assurance engagements, including review engagements. These principles include the need for the professional accountant to maintain independence and objectivity and to exercise professional skepticism.
Planning and Performance: The auditor should plan and perform the review engagement with due care and skill, by the requirements of the applicable financial reporting framework. The auditor should also perform analytical procedures and inquiries to obtain limited assurance that the financial statements are free from material misstatement.
Evidence: The auditor should obtain sufficient appropriate evidence to support the conclusion reached in the review engagement. The auditor should also evaluate the evidence obtained and assess the risk of material misstatement.
Reporting: The auditor should provide a report that states whether, based on the procedures performed, they are aware of any material modifications that should be made to the financial statements for them to be by the applicable financial reporting framework. The report should also state that a review engagement is substantially less in scope than an audit engagement and does not enable the auditor to obtain assurance that they would become aware of all significant matters that might be identified in an audit.
Documentation: The auditor should maintain documentation that provides evidence of the planning, performance, and conclusion reached in the review engagement. The documentation should be sufficient to enable another professional accountant to understand the nature, timing, and extent of the procedures performed, and the evidence obtained.
What is the Different Between Review Engagement and Audit?
Both review engagements and audits are types of assurance engagements performed by professional accountants in public practice. However, there are several key differences between the two types of engagements:
- Level of Assurance: The level of assurance provided by a review engagement is lower than that provided by an audit engagement. In a review engagement, the accountant provides limited assurance that the financial statements are plausible and free from material misstatement, whereas in an audit engagement, the accountant provides reasonable assurance that the financial statements are free from material misstatement.
- Scope: The scope of a review engagement is narrower than that of an audit engagement. In a review engagement, the accountant performs analytical procedures and inquiries to obtain limited assurance that the financial statements are free from material misstatement. In an audit engagement, the accountant performs procedures to obtain evidence about the entity’s internal control and assesses the risk of material misstatement due to fraud or error.
- Report: The report issued by the accountant in a review engagement needs to be more detailed than that issued in an audit engagement. In a review engagement, the accountant provides a report that states whether, based on the procedures performed, they are aware of any material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework. In an audit engagement, the accountant provides a formal opinion on the financial statements, stating whether they are free from material misstatement and are presented fairly per the applicable financial reporting framework.
- Cost: The cost of a review engagement is generally lower than that of an audit engagement, as a review engagement requires less work and provides a lower level of assurance.
What Type of the Opinion Issue Auditor for the Review Engagement?
In a review engagement, the auditor issues a review report, which includes a conclusion on whether any material modifications are required to be made to the financial statements in order for them to be by the applicable financial reporting framework.
The conclusion in a review report may be one of two types of opinions:
Unmodified Conclusion: If the auditor concludes that no material modifications must be made to the financial statements, the auditor issues an unmodified conclusion in the review report. This means the auditor provides limited assurance that the financial statements are plausible and free from material misstatement.
Modified Conclusion: If the auditor concludes that material modifications are required to be made to the financial statements in order for them to be by the applicable financial reporting framework, the auditor issues a modified conclusion in the review report. This means that the auditor provides limited assurance that the financial statements are not plausible or are materially misstated.
It is important to note that a review engagement provides a different level of assurance than an audit engagement. Therefore, the conclusion reached in a review report is a limited conclusion, as the auditor is not expressing an opinion on the financial statements as a whole.
What Are the Contents of the Review Engagement Report?
An auditor issues a review engagement report after performing a review engagement on the financial statements of an entity. The report includes several key components, which are as follows:
- Title: The report’s title usually includes the words “Independent Review Report” to indicate that the auditor is independent of the entity being reviewed.
- Addressee: The report is addressed to the entity’s management or board of directors and any other specified parties.
- Introductory Paragraph: The introductory paragraph provides an overview of the purpose and scope of the review engagement, as well as a statement that the review was conducted in accordance with the applicable review engagement standards.
- Management’s Responsibility: This section describes the responsibilities of the entity’s management for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework.
- Auditor’s Responsibility: This section describes the auditor’s responsibility to perform the review engagement in accordance with the applicable review engagement standards and to obtain limited assurance that the financial statements are free from material misstatement.
- Procedures Performed: This section describes the procedures performed by the auditor during the review engagement, which may include inquiries, analytical procedures, and other review procedures.
- Conclusion: This section includes the auditor’s conclusion on whether any material modifications must be made to the financial statements for them to be by the applicable financial reporting framework. The conclusion may be unmodified or modified, depending on the findings of the review engagement.
- Other Reporting Responsibilities: This section may include any other reporting responsibilities the auditor has agreed to undertake, such as reporting on specific financial statements or internal control aspects.
- Signature and Date: The report is signed and dated by the auditor, indicating that the review engagement has been completed and the report has been issued.