Review Services
Review services provide a moderate level of assurance on financial statements. In a review, the CPA performs analytical procedures and makes inquiries to ensure that the financial statements are reasonable and free of material misstatements. However, the level of assurance is lower than that of an audit, and the CPA does not perform a full audit of the company’s financials.
Key Features of Review Services:
- Limited Assurance Provided: The CPA expresses limited assurance that the financial statements are not materially misstated. The goal is to ensure that the statements are in conformity with the applicable financial reporting framework (such as GAAP).
- Analytical Procedures and Inquiries: The CPA conducts analytical procedures (e.g., ratio analysis, trend analysis) and inquiries of management to understand the company’s financial situation and assess whether the financial statements make sense.
- No Detailed Testing: Unlike an audit, a review does not involve detailed tests of transactions, verification of account balances, or evaluation of internal controls. It is less extensive and less costly than an audit.
- Management Representation Letter: The CPA obtains written representations from management confirming the accuracy and completeness of the information provided.
- Engagement Letter: Similar to a compilation, an engagement letter outlines the scope of the work, the level of assurance provided, and the responsibilities of both parties.
- Report: The CPA issues a review report stating that no material modifications are needed for the financial statements to conform to the applicable financial reporting framework, but that the review provides limited assurance.
When to Use Review Services:
- When external stakeholders (e.g., investors, lenders, or regulators) require a higher level of assurance than a compilation, but a full audit is not necessary.
- For small to medium-sized businesses that need assurance about their financial statements for investors or financing.
- For businesses preparing for more formal financial oversight (e.g., moving from private to public ownership or applying for significant loans).
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