What is Review Engagement, and How Does it Work? – A Helpful Guide

The assurance level provided to users of financial statements by a review engagement is lower than that provided by an audit since the procedures used to perform a review are less rigorous.

What is Review Engagement?

Some other names for a review engagement include limited assurance or negative engagement. Auditors perform review engagements after an accountant has finished an audit of a company’s financial statements. As a result, the auditor only gives limited assurance as to the financial statements’ accuracy. During the engagement, the auditor will conduct inquiry and analytical review procedures in order to provide a low degree of assurance, which is necessary in order to produce a report with a negative assurance report.

If the auditor has reason to doubt that an assertion made by one party is an accurate and fair representation of the situation, they will declare as much in a negative assurance report. The auditor’s expectation is to report any information discovered during the engagement that indicates the financial statements do not accurately and fairly represent the company or comply with the relevant accounting standards. The distinction between an audit engagement and a review engagement is significant, as the latter provides greater assurance to the end user.

Example:

Submitting financial statements to the security exchange regulator is an excellent illustration of a review engagement, typically conducted between external audit firms, for the client’s benefit.

This type of engagement typically results in fewer audit procedures being performed and a lower level of assurance regarding the financial statements in question.

To conclude their work, auditors will offer their view that the financial statements are truthful and fair in all material respects if they have discovered no instances of material misstatement.

Agreed-upon processes are another type of review engagement. When a customer requests that an auditor perform work or examine specific aspects of financial statements according to predetermined procedures, this is known as a “agree upon procedures engagement.”

Types of Review Engagements

• Risk assessment reports
• Review of internal controls
• System reliability reports
• Value for money reviews
• Social and environmental reports

5 Steps of Review Engagement

The five steps of a review engagement are as follows:

• Accepting the appointment and thinking about independence
• Understanding the client to identify areas where major misstatements are likely to occur and designing appropriate processes
• Conducting review procedures
• Designing and carrying out any additional procedures required when problems emerge
• Evaluate the evidence gathered to reach a conclusion and write a report.

All significant items and disclosures in the financial statements should be reviewed, with particular attention paid to those areas where major misstatements are most likely to occur, using a combination of inquiry and analytical processes. Additional areas where detailed questions are called are –

• Significant accounting estimates
• Related parties and related party transactions
• Important, unusual or complex transactions or matters
• Fraud and non-compliance with laws and regulations
• Going concern.

If a material misstatement is suspected, then further procedures must be carried out to reach the needed conclusion from the financial statements.

Review engagement work and the resulting conclusion are less trustworthy than audit work. However, a review engagement has the potential to provide a bespoke assurance service to clients while making sure that added-value aspects of an audit are retained, with a focus on client understanding and arguably greater flexibility and proportionality available in the application of relevant requirements.

Review Engagement Procedures

When the firm’s financial statements have already been generated and certified as valid, the company prefers a review engagement in which an external accountant reviews the financial statements for the company. The external auditor must give negative assurance that the financial statements are free of substantial misstatements because they have already been certified as correct.

A review engagement is less demanding in terms of the procedures done by the accountant. The accountant will conduct analytical procedures during the evaluation to help them make sense of the numbers. For this reason, the accountant cannot provide an opinion on the financial accounts’ accuracy.

The accountant’s activities in a review engagement include interviewing firm employees and analyzing financial statement data. The accountant only sometimes collects evidence like they would during an audit.

Evaluating financial data by examining apparent correlations with other data types is an example of an analytical technique. A crucial concept underlying the implementation of analytical processes is that reasonable correlations among data exist.

Analytical procedures may assist uncover potential material misstatements. Using analytical techniques requires calculating ratios and trends, interpreting the results, and identifying notable changes and their source. The outcomes of such procedures should be utilized as a foundation for conducting subsequent enquiries and collecting additional information.

The rules for applying analytical procedures include the following:

• Check the previous year’s and the current year’s financial statements for the same time periods.
• Compare financial statements with forecasted or budgeted information for comparable periods.
• Study relationships between the aspects of the financial statements that would be expected to correspond to a predictable pattern based on an entity’s industry and experience.

Canadian Standard on Review Engagements (CSRE) 2400 mandates that the accountant perform the additional procedures necessary to achieve limited assurance. No material modifications should be made to the financial statements when analytical procedures identify significant fluctuations that lead the accountant to believe that information may be incorrect, incomplete, or otherwise unsatisfactory.

Main Parties in a Review Engagement

The following are the primary participants and the responsibilities they play in a review engagement:

1. Management

Management must follow the financial reporting structure while putting up the three major financial statements (balance sheet, income statement, and cash flow statement).

Also, the management is obliged to adopt internal control measures to help in creating financial statements that are free of substantial misstatements. The accountant can only get started on the financial statements with the appropriate financial information which they should offer.

2. Practitioner

A licensed practitioner can only carry out a review engagement. The practitioner must gather evidence independently, without depending on the word of others. They must also execute processes to reach a conclusion on whether anything came to their attention that causes them to suspect that the financial statements are not prepared in conformity with the appropriate financial reporting framework. The review procedures that the practitioner is obliged to complete include the following:

• Processes of analysis based on comparisons
• Acquiring the necessary fiscal data
• Management responsibility for internal control systems
• Questions about the firm’s bookkeeping methods
• Affirmations from top management regarding the reliability of the financial reports
• Fraud Awareness
• Management responsibility for detecting and preventing fraud
• Information on subsequent events
• Quantitative comparisons and correlations
• Methods for keeping track of money

3. Intended users

Users of the financial statements can include everyone from shareholders to investors to creditors. The review assignment aims to increase user trust in financial statements.

The auditor is responsible for providing negative assurance regarding the compliance of the reviewed financial statements with the applicable reporting requirements and the absence of substantial misstatement. The financial statements, having been audited and certified previously, should not contain any errors, fraud, or omissions that could significantly affect the reader’s ability to make informed economic decisions.

Review Engagement vs. Audit Engagement

The following attempts to clarify the distinction between a review engagement vs audit engagement.

Review Engagement	Audit Engagement
Provide a negative or limited assurance	Positive assurance provides a higher level of assurance than negative assurance.
Auditors and professional accountants do not provide advice on financial statements or  subject matters	Auditors provide their opinion of financial statements.
In most cases, the review engagement report will state, “nothing has come to our attention…”	Usually states in the review engagement report as “In our opinion…”
The risk is reduced to a moderate level	The risk is reduced to an acceptably low-level
Auditors or professional accountants only need to review subject matters	Auditors must conduct subject-matter examinations by gathering sufficient acceptable evidence to form an opinion.

Unison Globus at your service…

As a form of work, review engagements are becoming more and more popular amongst assurance experts. With the assistance of Audit Assistant’s pre-made templates, auditors can conduct cost-effective and compliant Review Engagements. For more information on review engagements and their suitability for your business, please contact us at [email protected].

FAQs

What are review engagements?

Financial statement reviews involve an independent accountant deciding whether there is any reason to doubt that the financial statements provide a truthful and fair image of a company.

An expert can provide the desired level of assurance to a client at a fraction of the expense of an audit by concentrating review efforts on areas deemed to be critical or where major misstatements may develop. This lesser level of assurance comes at a lower cost and requires less effort than an audit would. Thus, clients who need assurance about their financial statements but don’t want to deal with the bureaucracy of an audit might turn to a review engagement instead.

 

What procedures are performed in a review engagement?

A review engagement needs the accountant to do very little work. Procedures are limited to a managerial inquiry and some analytical activities. An example of an analytical procedure is evaluating financial data by investigating apparent correlations with other forms of data.

As a starting point for analytical procedures, plausible correlations among data are considered to exist. Analytical procedures may reveal potentially significant misstatements. Analytical procedures calculate ratios and trends, analyse data, and identify substantial variations and their causes. After these steps, gather more data.

 

Is a review engagement an assurance engagement?

The negative assurance provided by a review engagement is of a modest level of certainty that the information under review is devoid of material misrepresentation.