A financial statement review refers to a service where the company’s accountants get a limited assurance which means that the accountants do not have to make any material modifications on the company’s financial statement for it to comply with the financial reporting frameworks. For financial statement reviews, the accountants do not need to understand the internal control, evaluate the fraud risks, or conduct any audit procedures. As a result, the accountants will not obtain an assurance that they are aware of all the crucial issues which the auditors will typically discover and disclose in an audit (Also see Checklist for the Workplace Audits).
A financial statement review costs more than a compilation, but it is cheaper than an audit. The business owners (Also see Characteristics of Successful Business Owners) whose creditors and lenders will let them use a review will prefer using this approach since they can save the cost of employing an audit firm in Johor Bahru to perform an audit for them.
In a financial statement review, the company’s management is responsible for preparing and presenting its financial statements. On the other hand, the accountants need to possess sufficient knowledge about the company and the industry it is involved in so that they are capable of reviewing the financial statements.
In a review, the company’s accountants (Also see How Do Accountants Carry Out the Accounting Process?) need to conduct the procedures required to give them a reasonable basis for acquiring a limited assurance by which the company does not have to make any material adjustments to let its financial statements to be compliant with the pertinent financial reporting frameworks. The focus of these procedures is mainly on the areas with a high risk of having misstatements. Listed below are the procedures that the accountants may use to conduct a financial statement review.
– Review the reports that the management has issued about any accountants who have completed a review or an audit (Also see How to Reduce Time Required for Audit Cycle?) on the company’s financial statements in the previous accounting periods
– Continue examining or observing the issues that arose in the last review
– Assess the communication between the company and the regulatory agencies
– Inspect any notable transactions that happen near the end of the company’s accounting period
– Ask about the material activities which occurred after the date of the company generating the financial statements
– Ask about the procedures the staff takes when they record accounting transactions
– Go through the company’s financial statements to determine whether they comply with the pertinent financial reporting frameworks
– Perform ratio analysis with the forecasted and historical result.
– Inspect complicated or abnormal situations which may influence the reported results
– Inspect inconsistent findings
– Inspect notable journal entries
If the accountants have conducted the financial statement review and they think that the company has materially misstated its financial statements, they need to conduct more procedures so that they can get a limited assurance that the company does not have to make material adjustments on those statements. If the company has materially misstated the statements, the accountant should either disclose that matter in the report or withdraw from the review.