Review engagement reports on financial statements have changed for financial statement periods ending on or after December 14, 2017. So what does that mean for you, the client? How do the new standards impact your role as management or those charged with governance? The list below provides answers.
What Should You Expect?
- New letters: We will require you to sign a new engagement letter. This letter will explain your responsibilities as the client and our responsibilities as the practitioner as they relate to the review engagement standard. There may also be changes to the representation letter as necessary.
- More communication: The new review engagement standard includes a greater emphasis on communication with you as management (and those charged with governance (“TCWG”) if separate), including:
- Communication of all misstatements accumulated during the review and a request that management correct those misstatements.
- A request for written representation of management about whether you believe the effects of uncorrected misstatements are immaterial, individually or in the aggregate, to the financial statements as a whole.
- More discussion and inquiry: The new review engagement standard emphasizes focusing on the financial statement areas where material misstatements are likely to occur. Therefore, we may ask different questions of you in order to meet the more specific requirements under the new standard regarding inquiry and analytical procedures.
- A new report: The most significant change you may notice is to the review engagement report (the communication attached to the beginning of the financial statements). A sample report is included at the end of this document for your reference.
How Will the New Review Engagement Report Look?
- The previous review engagement report briefly described what constitutes a review and provided our conclusion.
- The new report summarizes both management’s and our responsibilities (describing a review engagement as a limited assurance engagement) and then provides our conclusion.
- Remember: A review engagement is not an audit; it is a limited assurance engagement. The procedures performed in a review are substantially less in extent than, and vary in nature from, those performed in an audit.
- Based on certain circumstances, the review engagement report may also include an Emphasis of Matter paragraph or Other Matter paragraph:
- Emphasis of Matter paragraphs will be included if we consider it necessary to draw users’ attention to a matter presented or disclosed in the financial statements that, in our judgment, is of such importance that it is fundamental to users’ understanding of the financial statements. Such paragraphs will refer only to information presented or disclosed in the financial statements. Examples include:
- When the financial statements are for a special purpose (e.g., financial statements prepared in accordance with the financial reporting provisions of an agreement) because they may not be suitable for another purpose;
- If a material uncertainty exists relating to going concern.
- Other Matter paragraphs will be included if we consider it necessary to communicate a matter other than those presented or disclosed in the financial statements that, in our judgment, is relevant to users’ understanding of the review, our responsibilities or our report. Examples include:
- When the prior-period financial statements were reviewed or audited by a predecessor practitioner;
- When the prior-period financial statements were not reviewed or audited.
- You should familiarize yourself with the changes to the review engagement standard and report in order to understand the benefits and limitations of a review engagement and ensure it meets your reporting needs.
- You may want to communicate these review engagement report changes to users of your financial statements to ensure you are within their expected reporting requirements.
If you have any questions or require assistance with your accounting needs, please contact us at (905) 475-2222 or email@example.com.
The preceding was derived from “CPA Practitioner Client Briefing – Canadian Standard on Review Engagements” published March 2017.
A Review Engagement Report with an Unmodified Conclusion
INDEPENDENT PRACTITIONER’S REVIEW ENGAGEMENT REPORT
We have reviewed the accompanying financial statements of ABC Company that comprise the balance sheet as at December 31, 20X1, and the statements of income, retained earnings and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for private enterprises, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express a conclusion on the accompanying financial statements based on our review. We conducted our review in accordance with Canadian generally accepted standards for review engagements, which require us to comply with relevant ethical requirements.
A review of financial statements in accordance with Canadian generally accepted standards for review engagements is a limited assurance engage- ment. The practitioner performs procedures, primarily consisting of making inquiries of management and others within the entity, as appropriate, and applying analytical procedures, and evaluates the evidence obtained.
The procedures performed in a review are substantially less in extent than, and vary in nature from, those performed in an audit conducted in accordance with Canadian generally accepted auditing standards. Accordingly, we do not express an audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to believe that the financial statements do not present fairly, in all material respects, the financial position of ABC Company as at December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for private enterprises.
[Date of the practitioner’s report] [Practitioner’s address]
Written by Sharon Eidelman, CPA, CA