Review (Accounting Service)

Review Financial Data Board of Directors CPA Auditing Standards AICPA Analytical Review Public Companies Nonpublic Businesses
A review in accounting service provides limited assurance to the Board of Directors and other interested parties about the reliability of financial data. It does not involve an audit conducted according to generally accepted auditing standards but focuses on inquiry and analytical procedures.
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Definition

Review in the realm of accounting is a service that offers some assurance regarding the reliability of financial data without necessitating a full-fledged audit. It occupies a middle ground between an audit and a compilation and aims to provide a moderate level of assurance. In a review, accountants typically conduct a thorough inquiry and apply analytical procedures, but do not perform the extensive in-depth auditing procedures.

Examples

  1. Medium-Sized Business: A medium-sized manufacturing company requests a review of its quarterly financial statements to present them to potential investors. The CPA performs inquiries and analytical procedures to provide limited assurance on the reliability of these statements.

  2. Nonprofit Organization: A nonprofit organization wants assurance that their financial statements are reasonably accurate but cannot afford a full audit. They opt for a review, ensuring donors and stakeholders that the financial information is reliable.

  3. Startup: A tech startup looking for venture capital funding opts for a review of its financial statements as a cost-effective alternative to an audit, providing potential investors with confidence in the financial data.

Frequently Asked Questions (FAQs)

What distinguishes a review from an audit?

A review provides limited assurance through inquiry and analytical procedures, unlike an audit which involves in-depth examination and verification of financial data and provides reasonable assurance.

Who sets the standards for reviews?

The AICPA Auditing Standards Board formulates review standards for public companies, while the AICPA Accounting and Review Services Committee provides review standards for nonpublic businesses.

Is a review less expensive than an audit?

Yes, a review is generally less expensive than an audit because it requires fewer procedures and is less comprehensive.

Can a review prevent fraud?

A review does not aim to prevent or detect fraud as effectively as an audit. Its primary purpose is to offer limited assurance about the financial data’s reliability.

Who typically requires a review of financial statements?

Small to medium-sized businesses, non-profits, and startups may opt for reviews to give stakeholders some level of assurance without incurring the costs associated with an audit.

Audit

A systematic and independent examination of financial statements to provide a reasonable level of assurance that the financial statements are free of material misstatement.

Compilation

A service in which a CPA prepares financial statements based on the information provided by client management without providing any assurance on the statements.

Analytical Procedures

Techniques used during reviews to evaluate financial information by studying plausible relationships among financial and non-financial data.

Online References

Suggested Books for Further Studies

  1. Accounting Review and Analysis by David M. Kreps
  2. Financial Statement Analysis and Business Valuation for the Practical Lawyer by Everett P. Dirksen
  3. Wiley CPAexcel Exam Review Study Guide 2022 by Wiley

Fundamentals of Review: Accounting Basics Quiz

### What level of assurance does a review provide? - [ ] No assurance - [ ] Reasonable assurance - [x] Limited assurance - [ ] Full assurance > **Explanation:** A review in accounting provides limited assurance, as it mostly involves analytical procedures and inquiries rather than the extensive checks carried out in an audit. ### Who formulates review standards for public companies? - [ ] Financial Accounting Standards Board (FASB) - [x] AICPA Auditing Standards Board - [ ] Securities and Exchange Commission (SEC) - [ ] AICPA Accounting and Review Services Committee (ARSC) > **Explanation:** The AICPA Auditing Standards Board formulates review standards for public companies. ### What procedures are primarily involved in a limited review? - [ ] Detailed examinations and verifications - [ ] Random sampling and observations - [x] Inquiry and analytical procedures - [ ] Comprehensive testing and verification > **Explanation:** A limited review primarily consists of inquiry and analytical procedures to provide limited assurance about the financial data. ### In a review, internal controls are: - [ ] Fully evaluated like in an audit - [ ] Completely disregarded - [x] Considered through inquiries - [ ] Independently tested > **Explanation:** In a review, internal controls are generally considered through inquiries but are not independently tested as they would be in an audit. ### What is the primary objective of a review? - [ ] To certify the financial statements - [x] To provide limited assurance about financial data reliability - [ ] To detect fraud - [ ] To prepare financial statements > **Explanation:** The primary objective of a review is to provide limited assurance about the reliability of financial data. ### Which committee formulates review standards for nonpublic companies? - [ ] Financial Accounting Standards Board (FASB) - [ ] AICPA Auditing Standards Board - [ ] Securities and Exchange Commission (SEC) - [x] AICPA Accounting and Review Services Committee (ARSC) > **Explanation:** The AICPA Accounting and Review Services Committee provides review standards for nonpublic businesses. ### For whom is a financial review usually appropriate? - [ ] Large public corporations only - [x] Small and medium-sized businesses, startups, and non-profits - [ ] Individual taxpayers - [ ] Sole trading enterprises only > **Explanation:** Reviews are typically appropriate for small and medium-sized businesses, startups, and non-profits needing limited assurance about their financial statements. ### Compared to an audit, a review is: - [ ] More thorough and extensive - [x] Less comprehensive and cheaper - [ ] As detailed and expensive - [ ] A full certification of financial data accuracy > **Explanation:** A review is less comprehensive and less expensive than an audit since it involves fewer procedures. ### In conducting a review, a CPA will: - [ ] Prepare financial statements without providing any assurance - [ ] Offer reasonable assurance about the financial data - [x] Perform inquiries and analytical procedures to provide limited assurance - [ ] Issue an opinion on the financial statements > **Explanation:** During a review, a CPA performs inquiries and analytical procedures to provide limited assurance about the reliability of financial data. ### How does a review aid stakeholders? - [ ] It confirms the absolute accuracy of financial data - [ ] It prevents any material misstatements - [x] It offers some level of confidence in financial data reliability - [ ] It ensures the least expensive financial service > **Explanation:** A review aids stakeholders by offering some level of confidence in the reliability of financial data without confirming absolute accuracy.

Thank you for exploring the concept of accounting reviews with us! We hope this helps in understanding the depth and applications of review services in the accounting world.

Wednesday, August 7, 2024
Revision Variance (Planning Variance)
Reversionary Value
Generally Accepted Auditing Standards (GAAS) January 1, 1
Analytical Auditing January 1, 1
Non-Executive Director January 1, 1
Personal Financial Specialist (PFS) January 1, 1
Statement on Auditing Standards (SAS) January 1, 1

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