Is a Review Engagement Right for Your Business?
If you own a business, you may have been asked by a lender, investor, or other stakeholder to provide reviewed financial statements. But what does a review engagement actually involve, and when might your business need one?
A review engagement provides more assurance than a compilation without requiring the level of work involved in an audit. For many private businesses, it can provide the right balance between financial reporting needs and assurance.
What is a review engagement?
A review engagement provides limited assurance on a business’s financial statements.
During a review, the accountant primarily uses inquiry and analytical procedures to assess whether the financial statements appear plausible. The work is less extensive than an audit, but provides a higher level of assurance than a compilation engagement.
At the end of the engagement, a review engagement report provides a formal conclusion on the financial statements.
Why choose a review engagement?
There are several reasons a business may require or benefit from reviewed financial statements:
- Financing requirements: Banks and other lenders may request reviewed financial statements when assessing or renewing financing.
- Stakeholder confidence: A review provides independent limited assurance that may be useful to shareholders, investors, and other users of the financial statements.
- Greater assurance: A review provides more assurance than a compilation without requiring the more extensive procedures of an audit.
- Business growth: As a business becomes more complex, its financial reporting needs may change.
Who might need a review engagement?
A review engagement may be appropriate if your business:
- Is applying for financing or renewing an existing lending arrangement.
- Has shareholders or other stakeholders who require greater assurance over the financial statements.
- Is growing and has more complex financial reporting needs.
- Does not require an audit but needs more assurance than a compilation provides.
The appropriate level of assurance depends on how your financial statements will be used and what lenders, shareholders, or other users require.
What does the process look like?
A review engagement generally includes several key stages:
- Planning: We develop an understanding of your business, operations, and financial reporting requirements.
- Inquiry and analysis: We ask questions and perform analytical procedures on the financial information.
- Assessment: We consider the results of those procedures and whether additional work is required.
- Reporting: We issue financial statements together with a review engagement report containing our conclusion.
Finding the right level of assurance
You may not need the level of assurance provided by an audit, but a compilation may not meet the needs of your lender, shareholders, or other financial statement users. That’s where a review engagement can fit.
Davidson can help you understand the differences and determine which level of financial reporting is appropriate for your business.
This article is provided for general information only and should not be considered accounting, legal, or tax advice. Your individual circumstances may differ. Contact your trusted advisor for guidance specific to your needs.
