REVIEW ENGAGEMENT

Where an audit is not required or the shareholders have waived the appointment of an auditor, financial statements may be prepared on a review basis. Enterprises that are not required by law to have an audit may still want some level of independent assurance to increase the credibility of their financial statements, for example, when seeking a loan from a bank. In these cases, a review can be an ideal solution.

Reviews provide limited assurance that the financial information conforms to generally accepted accounting principles (GAAP). Since the work effort involved in performing a review engagement is generally less than that in conducting an audit, a review should be a more cost-effective option while still involving the financial reporting expertise of an independent professional accountant. On the other hand, a review may not be appropriate, for example, for complex entities, such as banks or insurance companies, for which inquiry and analytical procedures alone may not reduce engagement risk sufficiently. In these cases, an audit or a compilation engagement may be more appropriate.

In performing a review the accountants must be independent from the client and have sufficient knowledge of the industry in which the business operates. We would acquire sufficient knowledge of our client’s business in order to make intelligent inquiry and assessment of the information obtained, with the limited objective of determining the plausibility of the information reported on. The review should entail inquiries, analytical procedures, and discussion with responsible client officials.

The aim of a review engagement is to prepare and review financial statements to ascertain whether they are plausible, that is, worthy of belief. If, after reviewing the financial statements, the accountants are satisfied that the financial statements are not misleading, the accountants’ standard report will preface the financial statements.