With continued uncertainty over the future of audit exemption limits, many firms are looking into other ways of providing proportionate assurance to clients that do not require, or request, an audit. This blog provides a summary of what's involved for firms looking to add 'review engagements' to the list of services they currently offer to their clients.
What are review engagements?
A review of financial statements involves an independent accountant forming a conclusion as to whether anything has come to their attention that causes them to believe a company's financial statements do not give a true and fair view.
The work required to be able to issue this limited assurance conclusion is less than for an audit. By focussing review work on areas considered to be material, or where material misstatement may arise, a practitioner may be able to offer the level of assurance that a client desires at much less of a cost than for an audit. A review engagement therefore offers a realistic assurance alternative to clients that require assurance over their financial statements, without the red tape associated with an audit.
The new Mercia Assurance Specialist Assignment Manual includes a flexible, fully comprehensive approach for practitioners looking to provide review engagements for their clients. A complete set of work programmes is included, along with accounts disclosure checklists.
What requirements need to be adhered to?
The principal requirements for a review engagement derive from International Standard on Review Engagements 2400 (Revised), Engagements to Review Historical Financial Statements. This standard, issued by the International Auditing and Assurance Standards Board provides the framework for undertaking review engagements.
Where applicable, ISRE 2400 (Revised) is also supported by ICAEW Technical Release TECH 09/13AAF Assurance Review Engagements on Historical Financial Statements. This Technical Release, published in 2013, supersedes Technical Release AAF 03/06 which covered the ICAEW's previous 'Assurance Service'.
Whilst an accountant does not have to be a registered auditor to undertake a review engagement, the skill set involved in providing assurance to clients and requirements for independence and quality control, are similar. The guidance and procedures notes in the new Mercia manual provide background information on these requirements for those who are less familiar with them.
What work is involved?
A review engagement encompasses five main stages:
Review procedures consist of enquiry and analytical procedures which must be designed and performed sufficient to obtain appropriate evidence regarding all material items and disclosures in the financial statements, focusing on areas where material misstatements are likely to arise. There are also a number of areas where ISRE 2400 (Revised) requires specific enquiries, including:
- Significant accounting estimates
- Related parties and related party transactions
- Significant, unusual or complex transactions or matters
- Fraud and non-compliance with laws and regulations
- Going concern.
Additional procedures are then required where material misstatement is suspected, sufficient to draw the necessary conclusion on the financial statements.
The work performed on a review engagement, and hence the conclusion drawn, provides less assurance than an audit. However, with focus on client understanding and arguably greater flexibility and proportionality available in the application of relevant requirements, a review engagement has the potential to provide a bespoke assurance service to clients whilst ensuring that added-value aspects of an audit are retained.
If you are interested in offering review engagements to your clients you can find out more about what's involved in our webinar and about the new Mercia Assurance Specialist Assignment Manual here.