What Happens During a Review? Inside Our CPA Process

If you’re new to financial statement engagements, you might picture a mysterious process with numbers, spreadsheets, and a flurry of forms. However, the CPA process for a review engagement is more approachable than you might think. It offers more assurance than a simple compilation, yet it doesn’t dive as deeply as an audit. Below is an inside look at how we conduct a review for our clients, step by step.

Step 1: Engagement Letter and Planning

• Clear Scope: We begin by sending you an engagement letter. This document clarifies what we will do, what we won’t do, when we’ll do it, and outlines our mutual responsibilities.
• Materiality and Risk Discussion: While a review doesn’t involve a detailed risk assessment like an audit, we do consider major financial areas that could be prone to error or oversight—such as revenue recognition or significant expenses.

Step 2: Document Requests

• Provided-by-Client (PBC) List: We give you a checklist of records needed, like your trial balance, bank statements, and key contracts.
• Gathering the Data: Organized records streamline this phase. We can quickly spot unusual balances or missing information when documents are well-prepared.

Step 3: Analytical Procedures

• Ratio Analysis: We compare current-year figures to prior years or industry benchmarks. If your gross margin spikes compared to last year, we’ll explore whether there’s a valid reason for the jump.
• Trend Analysis: We also look at trends in sales and expenses, checking for consistency month-to-month or seasonal patterns. Anything that seems out of the ordinary leads to further inquiries.

Step 4: Inquiries of Management

• Focused Questions: We talk with you or your accounting team about any anomalies we’ve found. For example, if accounts receivable increased by 40%, we’ll ask if you added a major new client.
• Documentation Requests: If there’s uncertainty about a specific entry, we might request an invoice, sales contract, or other documents that support the figures.
• Clarifying the Big Picture: These discussions aren’t interrogations. They’re aimed at understanding your operations and confirming that the numbers align with your business story.

Step 5: Evaluating the Findings

• Cross-Checking the Data: After the inquiries and analyses, we verify whether everything aligns logically. If something still appears off, we’ll conduct more follow-up.
• Assessing Consistency: We check whether your accounting methods (such as depreciation or revenue recognition) are consistent with prior years and your stated policies.
• Limited Assurance Conclusion: If we find no red flags indicating material misstatements, we conclude that we’re not aware of any modifications needed.

Step 6: The Review Report

• Standard Language: Our final output is a report stating we’ve conducted a review according to professional standards, without finding evidence of material misstatements.
• Negative Assurance: This means “nothing came to our attention” that suggests the financial statements require corrections.
• Comparisons to a Full Audit: Remember, a review is not an audit. The scope and report differ significantly. However, many lenders and investors consider this level of assurance sufficient for certain financing or partnership decisions.

Typical Timeline

1. Initial Coordination and Engagement (a few days to a week): Sign engagement letters, establish timelines, and gather basic data.
2. Document Collection (1–2 weeks, depending on record organization): Gather bank statements, ledgers, and significant contracts.
3. Analytical Review and Inquiries (1–2 weeks): Compare data, investigate anomalies, and ask clarifying questions.
4. Wrap-Up and Reporting (a few days to a week): Finalize conclusions, draft the review report, and deliver results.
   Note: Larger businesses or complex structures may need more time.

Conclusion

A review engagement provides a measure of confidence in your financial statements without the intensity and expense of an audit. By focusing on analytical procedures and targeted inquiries, we offer limited assurance that there are no major misstatements. If you’re interested in having a CPA look over your financials or want to determine whether a review engagement is more suitable for your needs than a compilation or audit, contact us today. We’ll guide you through the CPA process and help you present your financials with greater credibility.

G&S Accountancy is here to support your business with expert CPA services tailored to your needs. Reach out today to schedule your review engagement and experience the difference.

Frequently Asked Questions (FAQs)

Do you check for fraud in a review?

A review doesn’t include a full search for fraud. However, if something extremely suspicious appears, we will bring it to your attention.

If you spot a major mistake, can you fix it?

We can propose adjustments for you to consider, but it’s ultimately management’s responsibility to correct errors and finalize the financial statements.

Will you visit our office?

Most reviews can be done remotely, since the process involves analysis and inquiries. We may come on-site if it’s more efficient or if we need to see physical records.