CPA prepares financial statements from information provided by management and determines whether there are any obvious departures from generally accepted accounting principles.

Upon completion, a report on the financial statements is issued that states a compilation was performed but no assurance is expressed that the statements are in conformity with generally accepted accounting principles.
The goal of a review is to provide limited assurance that financial statements do not have any known errors or departures from the accounting rules found in GAAP.

The procedures performed by the external accountant during a review will be limited to inquiries and analytical review. This means the accountant will ask many questions of management and the finance staff. If the answers to the questions indicate the accounting is appropriate, then no additional follow-up would be needed. Analytical review means the accountant will look at the relationships between numbers to make sure they make sense. For example, if attendance at a local church is up about 10% from a year ago, then the amount of contributions from the congregation should have increased by something in the range of 10%. If contributions increased by much more or less than 10%, the accountant would ask management why. Another example is that if the full-time staff of a ministry increased from three people to four people, then wages, payroll taxes, and other benefits should have increased by something in the range of one-third. The accountant will follow up with management on relationships in a financial statement that do not immediately make sense.

Normally, there will not be any testing of information in the financial statements beyond inquiry and analytical review. The accountant will not obtain an understanding of the internal control system and will not discuss how the organization is addressing the risk of fraud in the financial statements. As a result, there is a significant limit on how much reliance an external reader of the financial statements can place on the review report issued by the accountant.

The key sentence in a review report reads, “Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.”

A review is most often obtained when an outside party, such as a lender, needs to see the financial information in a typical format and is looking for some assurance that the information can be relied upon.

The cost of a review is obviously more than a compilation and might be somewhere in the range of 40% to 70% of the cost of an audit.

Reviewed Statements require that the CPA perform inquiry and analytical procedures in addition to the procedures described above for a compilation. Upon completion, a report is issued stating that a review has been performed in accordance with AICPA professional standards, that a review is less in scope than an audit, and that the CPA did not become aware of any material modifications that should be made in order for the statements to be in conformity with generally accepted accounting principles, or if applicable, another comprehensive basis of accounting. This is known as the expression of "limited assurance." Reviewed financial statements are often prepared for entities that have bank loans, outside investors, or trade creditors, but those third parties do not require audited statements.

Audit vs. Review
There are significant differences between the objectives of an audit of financial statements in accordance with generally accepted auditing standards and the objectives of a review in accordance with statements on standards for accounting and review services. The objective of an audit is to provide a reasonable basis for expressing an opinion regarding the financial statements taken as a whole. A review does not provide a basis for the expression of such an opinion because a review does not contemplate obtaining an understanding of the internal control structure or assess control risk, tests of accounting records and of responses to inquiries by obtaining corroborating evidential matter through inspection, observation or confirmation, and certain other procedures ordinarily performed during an audit. A review may bring to the accountant’s attention significant matters affecting the financial statements, but it does not provide assurance that the accountant will become aware of all significant matters that would be disclosed in an audit.
Quality reviewer - Quality reviewers are appointed for each audit and provide an additional element of independence and objectivity in key risk areas: audit planning and reporting.
Practice review - Practice reviews are carried out on a sample of audits to obtain a perspective on the quality of audit and management practices. Practice reviews are designed to contribute to continuous improvement by creating the opportunity for audit teams and the Office to learn from experience.
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