Understanding Review Engagements for CPA Exams
Review engagements are a crucial area within Auditing and Attestation (AUD) for CPA exam preparation. Unlike audits, which provide reasonable assurance, review engagements offer limited assurance. This module will break down the key aspects of review engagements, their objectives, procedures, and reporting.
What is a Review Engagement?
A review engagement is a type of attestation service where a CPA performs procedures that are less extensive than an audit but more extensive than a compilation. The primary objective is to obtain a basis for reporting whether the accountant is aware of any material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework.
Objectives of a Review Engagement
The primary objective of a review engagement is to provide assurance that the financial statements are free from material misstatement. This is achieved through the performance of specific procedures designed to identify potential issues.
To obtain a basis for reporting whether the accountant is aware of any material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework (i.e., provide limited assurance).
Key Procedures in a Review Engagement
Review engagements involve a set of procedures that are less rigorous than an audit but more substantive than a compilation. These typically include:
- Inquiry: Asking questions of management and other personnel responsible for financial and accounting matters.
- Analytical Procedures: Performing analytical procedures to identify unusual fluctuations or relationships in the financial data.
- Reading the Financial Statements: Reading the financial statements and notes to identify any obvious errors or omissions.
Distinguishing Review from Other Attestation Services
| Service | Assurance Level | Procedures Performed | Accountant's Report |
|---|---|---|---|
| Audit | Reasonable Assurance | Extensive procedures including tests of controls and substantive testing. | Opinion on fairness of financial statements. |
| Review | Limited Assurance | Inquiries and analytical procedures. | Conclusion stating no material modifications are known. |
| Compilation | No Assurance | Primarily presenting financial information provided by management. | No opinion or conclusion provided. |
Review Engagement Report
The accountant's report for a review engagement is distinct from an audit report. It includes a statement that the accountant has not become aware of any material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework. It also states that the review was conducted in accordance with Statements on Standards for Accounting and Review Services (SSARS).
Remember, a review report provides 'negative assurance' – it states what is NOT wrong, rather than what IS right.
When is a Review Engagement Appropriate?
Review engagements are typically performed when a client needs assurance on their financial statements but does not require a full audit. This might be for lenders, investors, or other stakeholders who need more comfort than a compilation provides, but where the cost of an audit is prohibitive or unnecessary.
Key Considerations for CPA Exam Success
On the CPA exam, expect questions that test your understanding of:
- The difference in assurance levels between audits, reviews, and compilations.
- The specific procedures involved in a review engagement.
- The content and implications of a review report.
- Situations where a review engagement is appropriate.
Visualizing the scope of procedures in attestation services helps differentiate them. An audit involves a broad range of procedures, including detailed testing. A review focuses on inquiries and analytical procedures, which are less intensive. A compilation involves presenting information without any assurance. This layered approach to procedures directly impacts the level of assurance provided.
Text-based content
Library pages focus on text content
Practice Questions and Application
To solidify your understanding, work through practice questions that present scenarios requiring you to identify the appropriate attestation service or interpret the findings of a review engagement. Focus on applying the concepts learned to real-world situations.
Learning Resources
The official source for Statements on Standards for Accounting and Review Services (SSARS) from the AICPA, which govern review engagements.
An article from The CPA Journal providing a comprehensive overview of review engagements, their purpose, and procedures.
A clear explanation of review engagements, contrasting them with audits and compilations, and detailing the key procedures.
A video tutorial explaining the core concepts of review engagements, often helpful for visual learners preparing for the CPA exam.
Provides a concise definition and explanation of review engagements, including the accountant's responsibilities and reporting.
An article discussing the evolution of SSARS and its impact on review engagements, offering insights into current standards.
This resource clearly outlines the distinctions between review engagements and audits, focusing on assurance levels and procedures.
An overview of various attestation services offered by CPAs, including a section that contextualizes review engagements.
Content from a reputable CPA review provider that breaks down review engagements specifically for exam preparation.
A Wikipedia entry that provides a general overview of financial statement reviews, their purpose, and the assurance provided.