Certified Public Accountants
How Does a Review Compare to an Audit?
A review is an assurance service that CPAs can perform for an organization’s Board of Directors to provide limited assurance about the financial statements of the organization. The assurance indicates only that the CPA is not aware that any material modifications to the financial statements are needed in order that they conform to accounting principles. As with an audit, the CPAs must be independent of having any financial interest in the organization and of any close relationships with key people within the organization.
The Review report is presented in the form of an opinion from the CPA. It indicates that the review consists principally of inquiries of organization personnel and the application of analytical procedures to the financial data. It also expressly states that a review is substantially less in scope than an audit. The assurance that no modifications are needed does not include small dollar amounts that would have an insignificant impact on someone relying on the financial statements. As with an audit, the assurance is based on reasonableness, not exactness.
Middle Ground
Essentially, a review is designed to determine whether the financial statements
make sense. A review falls between a compilation, providing no assurance,
and the more extensive assurance of an audit. The CPA often compiles the
financial statements for the organization before performing the review.
However, the management of the organization is responsible for the financial
statements and is required to sign a representation letter stating that
explicitly.
Standards to Follow
CPAs follow certain standards when performing a reviews. The CPA obtains
information about the organization, including its methods of operation
and its products or services, record keeping, changes in business activity,
and actions of the Board of Directors. The CPA inquires about any significant
financial transactions between the organization and individuals who are
a part of the organization or closely related to someone who is involved.
Does It Make Sense?
The CPA analyzes the financial data that is reported on the financial statements
to identify unusual items or trends. This limited level of assurance may
be adequate for an organization or its creditors, but an expectation of
a higher level of assurance would require an audit.
Effective Alternative
Should a Board of Directors wish to be provided with third-party professional
assurance of the soundness of their financial systems and controls, Jacobson
Jarvis can offer effective alternatives for considerably less fee than
an audit, specifically, our Financial Health Check-Up.
A sustaining resource for
the not-for-profit community