Navigate Accounting Like a Pro: Your Ultimate Review Guide

Getting the Lowdown on Review Engagements

What’s a Review Anyway?

Alright, let’s break it down. A review engagement in accounting is like a light check-up for a company’s financial statements. Think of it as a quick once-over to make sure everything looks good, but without the deep dive of an audit. It’s called “limited assurance” because it doesn’t go as far as an audit in verifying every detail (Corporate Finance Institute). Instead, it ensures there aren’t any glaring issues that need fixing based on the procedures performed.

During a review, the auditor uses analytical procedures and asks questions to gather enough evidence to say, “Yep, nothing major needs changing here”.

Engagement Type	Assurance Level	Scope	Cost
Review	Limited	Narrow	Lower
Audit	Reasonable	Wide	Higher

How’s It Different from an Audit?

A review and an audit are like apples and oranges—both fruit, but very different. An audit digs deep, offering the highest level of assurance that the financial statements are spot-on. This means a CPA firm checks internal controls and verifies financial figures through various procedures (FML CPAs).

Here’s the lowdown:

• Scope: A review is like a quick scan, focusing on analytical procedures and questions. An audit, however, is a full-on investigation, including testing internal controls and verifying financial figures.
• Assurance Level: A review gives limited assurance, which is often enough for early-stage or high-growth companies with tight budgets (FML CPAs). An audit, on the other hand, provides reasonable assurance, the gold standard.
• Procedures: In a review, the auditor does some number crunching and asks questions. An audit goes further, with detailed testing and verification.
• Cost: Reviews are cheaper than audits because they involve less work.

For more nitty-gritty details, check out our articles on accounting notes and accounting work experience.

Aspect	Review	Audit
Scope	Narrow	Wide
Procedures	Analytical and Inquiries	Detailed Testing and Verification
Assurance Level	Limited	Reasonable
Cost	Lower	Higher

Understanding these differences helps you decide which type of engagement fits your needs and keeps your stakeholders happy. For more tips, visit our section on choosing between review and audit.

The Review Process

The review process in accounting isn’t as intense as a full audit, but it still has its own set of steps and responsibilities. Knowing these can make you feel like a pro in no time.

Asking Questions and Crunching Numbers

When auditors review, they ask questions and analyze the numbers. This helps them give a moderate level of assurance and issue a “negative assurance” report.

• Asking Questions: Auditors ask about different parts of the financial statements and how the company operates. They might chat with management and staff to get a clearer picture of the financial data.

• Crunching Numbers: Auditors look at the numbers to spot any weird trends or differences in the financial statements. This could mean comparing this year’s data with last year’s or with industry standards.

Here’s a quick look at common questions and number-crunching tasks:

Task Type	Example
Asking Questions	Asking management about big financial transactions
Crunching Numbers	Comparing this year’s revenue to last year’s

For more details on these tasks, check out our accounting notes page.

Management’s Job

Management has a big role in the review process. They’re the ones who prepare the financial statements according to the reporting rules. Here are some key things they do:

• Making Financial Statements: Management needs to make sure the financial statements are accurate and complete.
• Keeping Things in Check: They need to have good internal controls to keep the financial records accurate.
• Sharing Info: Management must give auditors all the info they need and answer their questions.

Management Task	Description
Financial Statements	Making accurate and complete financial statements
Internal Controls	Keeping systems to ensure financial accuracy
Sharing Info	Answering auditor questions and providing data

Knowing how auditors’ tasks and management’s responsibilities fit together can help you handle the review process better. For more tips on accounting, visit our accounting website.

By getting familiar with these parts, you can make the review process smoother and more efficient. For more info, check out our resources on accounting examples and accounting operations.

Negative Assurance Reports

When you dive into reviewing financial statements, you often end up with a negative assurance report. This isn’t as thorough as a full audit but still gives some peace of mind.

What to Expect

In a negative assurance report, the auditor checks things out and says if they didn’t find anything fishy. It’s called “negative” because they’re saying, “We didn’t see anything wrong,” rather than, “Everything’s perfect”.

Here’s what you get with a negative assurance report:

• Limited Confidence: It’s not as solid as an audit but still gives you some assurance.
• Basic Checks: The auditor does some inquiries and analytical reviews.
• Less Work: Compared to an audit, the procedures are simpler and less detailed.

Aspect	Review Engagement	Audit Engagement
Assurance Level	Limited	High
Procedures	Inquiry and analytical review	Detailed testing and verification
Report Type	Negative assurance	Positive assurance

If you’re scratching your head over this, our accounting for beginners guide can help clear things up.

Key Disclosures

In a negative assurance report, the auditor must spill the beans if they find anything that suggests the financial statements aren’t up to snuff. Key disclosures include:

• Basis for Conclusion: What they did and why they think it’s enough for a negative assurance.
• Findings: Any issues or deviations from standard accounting practices.
• Limitations: Clearly stated limitations of the review process, emphasizing that it is not as comprehensive as an audit.

These disclosures keep things transparent and let stakeholders know what level of assurance they’re getting. This is especially handy for fast-growing companies with tight budgets, as it balances financial oversight with cost-effectiveness (FML CPAs).

For more on how negative assurance reports fit into the bigger picture, check out our accounting examples and accounting estimates resources.

Why Reviews Rock: The Perks of an Accounting Review

Thinking about getting an accounting review? Let’s break down why it’s a smart move. Reviews come with some sweet perks, especially when it comes to saving money and time.

Save Some Cash

A review is way cheaper than a full-blown audit, making it a great option for businesses that don’t want to break the bank (Accounting Tools). This is a lifesaver for small businesses or startups running on tight budgets.

Service	Cost Estimate
Review	$5,000 – $15,000
Audit	$10,000 – $50,000

With the money you save, you can invest in other important stuff like marketing, developing new products, or hiring more staff. For more on what accounting might cost you, check out our article on accounting estimates.

Save Some Time

One of the best things about a review is that it’s quicker and less of a hassle than an audit (Accounting Tools). Since a review involves fewer steps, it gets done faster, which is perfect if you’re short on time or staff.

Service	Estimated Time
Review	2 – 4 weeks
Audit	4 – 8 weeks

This means your financial statements get reviewed and ready to go without messing up your daily grind. For tips on keeping your accounting tasks on point, check out our accounting operations guide.

By knowing these perks, you can decide if a review is the way to go for your business. Don’t forget to dive into other resources like accounting for beginners to get even more savvy.

Why Reviews Aren’t Always Enough

Thinking about getting an accounting review? Hold on a sec. Before you dive in, you gotta know what you’re signing up for. Reviews are handy, sure, but they’ve got their limits. Let’s break it down.

What’s Covered and What’s Not

A review is like a quick check-up compared to a full-blown audit. It’s less intense, focusing mainly on asking questions and running some numbers. The auditor won’t dig deep into your books or poke around your internal controls.

Aspect	Review	Audit
Scope	Narrow	Broad
Procedures	Questions and number-crunching	Deep dive into records, internal controls
Depth	Surface-level	Thorough

Because of this, a review might miss stuff that’s super important for folks like bankers or investors. For example, it doesn’t include testing your accounting records or checking out your internal controls. If you need a full picture of your company’s financial health, a review might not cut it.

How Much Confidence Do You Get?

The confidence level from a review is kinda like a shrug. Unlike an audit, which gives you a solid thumbs-up, a review only offers limited assurance. The auditor will say they didn’t find anything majorly wrong, but that’s about it.

Aspect	Review	Audit
Assurance Level	Limited	High
Statement	No big issues found	Financials look good
Best For	Startups, small businesses	Big companies, regulatory needs

This level of assurance is usually okay for startups or small businesses that don’t have a lot of cash to burn. But if your investors or other stakeholders need more confidence in your financials, you might want to go for an audit.

The Bottom Line

Knowing these limitations helps you make a smarter choice between a review and an audit. Reviews are cheaper and quicker, but they might not give you the depth and assurance you need. For more details, check out our guide on choosing between review and audit and our resource on accounting for beginners.

So, think about what you really need before you decide. Your future self will thank you.

Picking Between a Review and an Audit

Deciding whether to go for a review or an audit? Let’s break it down so you can figure out what’s best for your business. We’ll look at what your company needs and what your stakeholders expect.

What Your Company Needs

The choice between a review and an audit depends on what your company really needs. A review gives you limited assurance and covers less ground than an audit. This might be perfect for startups or fast-growing companies that don’t have a lot of cash to spare (FML CPAs).

Aspect	Review	Audit
Assurance Level	Limited	Reasonable
Scope	Narrower	Broader
Cost	Lower	Higher
Time	Less Time-Consuming	More Time-Consuming

• Cost: Reviews are cheaper than audits, which is great if you’re watching your budget (Accounting Tools).
• Time: Reviews take less time, so they’re good if your accounting team is small or swamped.

What Your Stakeholders Want

Your stakeholders—like creditors and investors—have a big say in whether you need a review or an audit.

• Public Companies: If your company is publicly traded, you’ll need a review for your quarterly financials, except for the fourth quarter, which needs a full audit (Accounting Tools).
• Assurance Levels: If your stakeholders need high assurance, you’ll need an audit. If they’re okay with limited assurance, a review will do.

Stakeholder	Review	Audit
Creditors	Limited Assurance	Higher Assurance
Investors	Limited Assurance	Higher Assurance
Regulatory Bodies	May Require Audit	Often Require Audit

So, picking between a review and an audit means looking at what your company needs and what your stakeholders expect. For more details on the review process, check out our section on negative assurance reports. If you’re thinking about costs, our article on cost-effectiveness has some useful info.