What is a review?

A review engagement is conducted to provide limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the financial reporting framework.

A review differs significantly from an audit. Review engagements provide less assurance to the reader of the financial statements because the CPA does not perform many audit procedures. The broad review procedures required to be performed by the CPA are:

• Inquiries as to the accounting practices and principles used by the business
• Procedures for recording and accumulating financial information
• Actions are taken at owners’ or directors’ meetings
• Written representations from management regarding the accuracy of all information given to the CPA
• Receipt of all relevant information by the CPA
• Management’s responsibility for internal control
• Management’s responsibility to prevent and detect fraud
• Knowledge of fraud
• Information related to any significant subsequent events
• Analytical procedures regarding comparisons
• Expectations developed by the CPA of recorded amounts
• Ratios of recorded amounts
• Plausible relationships of recorded amounts

These analytical procedures provide a better understanding of key relationships among certain numbers. This understanding gives more assurance about the reasonableness of the financial condition presented in the financial statements.

Based on the inquiries and analytical procedures, the CPA can express only limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework. Because a review engagement is substantially less intensive in scope than an audit, the CPA cannot express an opinion on the fairness of the financial statements taken as a whole.

What is a compilation?

In a compilation engagement, the objective is to assist management in presenting financial information in the form of financial statements without undertaking to provide any assurance that there are no material modifications that should be made to the financial statements so they will conform to the acceptable financial reporting framework. Because of the even more limited scope of compilation procedures, the CPA’s report will not express an opinion or provide any assurance regarding the financial statements.

A compilation involves (1) gaining a general understanding of your business, accounting principles used and financial reporting system and (2) presenting financial information in the accepted format of proper financial statements. The CPA expresses no assurance about the accuracy of the financial statements presented. The report attached to the financial statement emphasizes that the service is a compilation.

While independence is required at the other levels of service, the CPA does not have to be independent of your organization to perform a compilation. The report must state that the accountant is not independent.

Further options lie within the compilation level of service. The compilation report may be a full disclosure report with complete footnote explanations of certain amounts and policies contained in the financial statements. Or, these otherwise required disclosures may be omitted. Omission of this information is not permissible under the other levels of service.

It is important to find the proper balance between the cost of the CPA’s services and the level of assurance the users of the financial statements require.

Contact us today by email or call us at 613-797-5559 to find out more.