AUD CPA Exam: Determining the Appropriate Form and Content of an Accountant’s Report for a Review Engagement

Introduction

Overview of Review Engagements

Definition and Purpose of a Review Engagement

In this article, we’ll cover determining the appropriate form and content of an accountant’s report for a review engagement. A review engagement is a type of assurance service that provides limited assurance about the financial statements of an entity. Unlike an audit, which offers a high level of assurance through extensive testing and verification, a review engagement involves the accountant performing analytical procedures and inquiries to conclude whether they are aware of any material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework. The purpose of a review engagement is to provide users of the financial statements with moderate assurance, which is less than what is provided in an audit but more than what is provided in a compilation.

Differences Between Audit, Review, and Compilation Engagements

Understanding the differences between audit, review, and compilation engagements is crucial for accountants, as each type of engagement provides a different level of assurance and requires varying degrees of work:

• Audit Engagements: In an audit, the accountant performs extensive procedures to verify the accuracy and completeness of the financial statements. This includes examining evidence, testing internal controls, and obtaining third-party confirmations. The result is an audit report that provides a high level of assurance, stating that the financial statements are free from material misstatement.
• Review Engagements: A review engagement is less comprehensive than an audit. The accountant primarily relies on inquiry and analytical procedures rather than detailed testing. The goal is to determine whether there are any material modifications that should be made to the financial statements. The level of assurance is moderate, and the accountant’s report reflects this by stating that nothing has come to the accountant’s attention that would require material modifications to the financial statements.
• Compilation Engagements: A compilation is the least rigorous of the three services. In a compilation engagement, the accountant assists in preparing the financial statements based on information provided by management but does not perform any procedures to verify the accuracy or completeness of the information. No assurance is provided, and the accountant’s report clearly states this lack of assurance.

Importance of the Accountant’s Report

Role of the Accountant’s Report in a Review Engagement

The accountant’s report is a critical component of a review engagement as it communicates the accountant’s conclusion regarding the financial statements. This report is the primary deliverable to the client and other stakeholders, summarizing the results of the review procedures and providing the accountant’s conclusion about whether any material modifications are necessary for the financial statements to conform with the applicable financial reporting framework. The clarity and accuracy of this report are essential because it influences the decisions of users who rely on the financial statements for various purposes, such as investment, lending, or regulatory compliance.

Regulatory and Professional Standards Governing Review Reports

The form and content of the accountant’s report for a review engagement are governed by regulatory and professional standards, primarily the Statements on Standards for Accounting and Review Services (SSARS) issued by the American Institute of Certified Public Accountants (AICPA). These standards dictate the specific elements that must be included in the report, such as the accountant’s conclusion, management’s responsibility, and the scope of the review. Adherence to these standards is mandatory to ensure the report’s credibility and to maintain the integrity of the accounting profession.

Moreover, the report must be consistent with the ethical requirements set forth by the AICPA, including independence and objectivity. Accountants must ensure that their reports comply with all relevant guidelines to avoid legal and professional consequences, such as disciplinary actions or loss of license.

Standards Governing the Accountant’s Report for Review Engagements

Overview of Applicable Standards

Statements on Standards for Accounting and Review Services (SSARS)

The Statements on Standards for Accounting and Review Services (SSARS) are the authoritative guidelines issued by the American Institute of Certified Public Accountants (AICPA) that govern the performance of review engagements. These standards are specifically designed to provide a framework for accountants when conducting reviews of financial statements. SSARS outlines the objectives, procedures, and reporting requirements that must be followed to ensure the quality and consistency of review engagements.

SSARS addresses various aspects of review engagements, including the nature of the review procedures, the extent of documentation required, and the form and content of the accountant’s report. The primary goal of SSARS is to ensure that the accountant provides limited assurance on the financial statements without the need for extensive verification procedures, distinguishing a review from an audit.

AICPA Guidelines and Relevant Standards

In addition to SSARS, the AICPA provides further guidance on the ethical and professional responsibilities of accountants conducting review engagements. These guidelines emphasize the importance of independence, objectivity, and professional judgment in all aspects of the engagement. The AICPA Code of Professional Conduct, for example, requires that accountants remain free from conflicts of interest and maintain an unbiased attitude throughout the review process.

Moreover, the AICPA has issued various other standards and interpretations that supplement SSARS, offering additional clarity on specific issues that may arise during a review engagement. These include guidelines on how to handle unusual or complex transactions, how to address subsequent events, and how to incorporate changes in accounting principles in the financial statements. Together, SSARS and the AICPA guidelines form the comprehensive regulatory framework that governs the preparation and presentation of the accountant’s report for review engagements.

Key Components Required by Standards

Specific Language and Form Required by SSARS

SSARS mandates that the accountant’s report for a review engagement must follow a specific format and include precise language to clearly convey the nature of the engagement and the level of assurance provided. The report must be structured in a way that leaves no ambiguity about the accountant’s role and the scope of the work performed. This standardization ensures that users of the financial statements understand that a review provides limited assurance, distinct from the more extensive assurance provided by an audit.

SSARS also requires that certain phrases and terminology be used consistently to avoid misinterpretation. For instance, the report should clearly state that the review was conducted in accordance with SSARS issued by the AICPA, and that the accountant is not aware of any material modifications that should be made to the financial statements. This specific language helps set appropriate expectations for the users of the report.

Essential Elements

A well-prepared accountant’s report for a review engagement must include several essential elements, each serving a distinct purpose in communicating the results of the engagement:

• Title: The title of the report should clearly indicate that it is a review report, typically using the phrase “Independent Accountant’s Review Report.” This immediately informs the reader of the nature of the engagement.
• Addressee: The report should be addressed to the appropriate party, typically the entity’s board of directors, management, or owners. The addressee reflects the intended recipient of the report and sets the context for its use.
• Introductory Paragraph: The introductory paragraph identifies the financial statements that were reviewed and states that the review was conducted in accordance with SSARS. This section also outlines the scope of the engagement, indicating that the review is limited in nature compared to an audit.
• Management’s Responsibility Paragraph: This paragraph clarifies that the responsibility for the preparation and fair presentation of the financial statements rests with management. It emphasizes that the accountant’s role is to conduct the review and not to prepare the financial statements.
• Accountant’s Responsibility Paragraph: Here, the accountant describes the nature of the review engagement, including the procedures performed and the limited assurance provided. This section should explicitly state that the review consists primarily of inquiries and analytical procedures and does not involve the same level of testing as an audit.
• Conclusion Paragraph: The conclusion paragraph provides the accountant’s overall conclusion based on the review. It typically states that the accountant is not aware of any material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework.
• Signature and Date: The report must be signed by the accountant or the accounting firm responsible for the review. The date of the report is also critical, as it indicates the point in time at which the review was completed and reflects the accountant’s conclusions based on the evidence available up to that date.

Essential Elements of an Accountant’s Report

Title

Appropriate Titles as per SSARS

The title of the accountant’s report is an essential element that immediately communicates the nature of the engagement to the reader. According to SSARS, the title should clearly indicate that the report is a product of a review engagement, distinguishing it from an audit or compilation report. The recommended title is “Independent Accountant’s Review Report.” This title reflects both the independent nature of the accountant’s role and the specific type of engagement conducted, setting the appropriate expectations for the level of assurance provided.

Addressee

Who the Report Should Be Addressed To

The addressee of the report is typically the governing body or management of the entity for which the review was conducted. Common addressees include the board of directors, shareholders, or management team. The addressee section should clearly identify the intended recipient(s) of the report, which helps ensure that the report is appropriately directed and used by those responsible for overseeing the entity’s financial reporting.

Introductory Paragraph

Scope and Purpose of the Review

The introductory paragraph is a critical component of the accountant’s report, as it sets the stage for the entire document. This section should clearly describe the scope and purpose of the review engagement. It must state that the review was conducted in accordance with SSARS and explain that the objective was to obtain limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework.

Identification of the Financial Statements Reviewed

In addition to outlining the scope and purpose, the introductory paragraph must also identify the specific financial statements that were subject to review. This typically includes the balance sheet, income statement, statement of changes in equity, and cash flow statement. By identifying these documents, the report makes it clear which financial statements the conclusions apply to, ensuring there is no ambiguity regarding the extent of the review.

Management’s Responsibility Paragraph

Outline of Management’s Responsibility for the Preparation and Fair Presentation of Financial Statements

The management’s responsibility paragraph is an essential element that clarifies the division of responsibilities between management and the accountant. This paragraph should explicitly state that the preparation and fair presentation of the financial statements are the responsibility of the entity’s management. This includes the design, implementation, and maintenance of internal controls necessary to ensure that the financial statements are free from material misstatement, whether due to fraud or error. By outlining these responsibilities, the report underscores that the accountant’s role is limited to conducting the review and does not involve taking responsibility for the accuracy of the financial statements.

Accountant’s Responsibility Paragraph

The Accountant’s Responsibility in Conducting the Review

The accountant’s responsibility paragraph should describe the nature of the review engagement and the procedures performed by the accountant. This section must indicate that the review was conducted in accordance with SSARS and that it involved primarily analytical procedures and inquiries of management. The paragraph should also clarify that these procedures are substantially less extensive than those performed in an audit, and therefore, the accountant does not express an opinion on the financial statements.

Reference to SSARS and the Nature of a Review (Limited Assurance)

This paragraph must include a reference to the SSARS as the governing standard for the review and highlight that the engagement provides only limited assurance. The accountant should state that the review is limited in scope and is not designed to detect all material modifications, but rather to determine whether, based on the review, the accountant is aware of any material modifications that should be made to the financial statements.

Conclusion Paragraph

Statement on the Limited Assurance Provided

The conclusion paragraph is where the accountant provides their conclusion based on the review. The standard language in this paragraph typically includes a statement that the accountant is not aware of any material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework. This statement reflects the limited assurance that the review provides, indicating that no material issues were found that would necessitate changes to the financial statements.

Explanation of What a Review Does and Does Not Entail

It is also important for the conclusion paragraph to clarify what a review does and does not entail. Specifically, the report should mention that the review does not provide a basis for expressing an opinion on the overall fairness of the financial statements, as would be the case in an audit. This helps manage the expectations of the report’s users by making it clear that the level of assurance provided is not as high as that of an audit.

Signature and Date

Who Should Sign the Report

The accountant’s report must be signed by the individual accountant or the accounting firm responsible for the review engagement. The signature serves as a formal endorsement of the findings and conclusions presented in the report. If the report is issued by an accounting firm, it is common practice for the firm’s name to be used as the signature, with the individual accountant’s name also included if required by jurisdictional rules.

Importance of the Date on the Report

The date of the report is a critical element because it indicates the point in time at which the review was completed. The date should be the date on which the accountant has gathered sufficient appropriate evidence to support the conclusions reached in the report. This date is important because it establishes the timeframe for the accountant’s responsibilities and limits the period within which the accountant’s procedures were performed. Any events occurring after this date are not covered by the review.

Common Modifications to the Standard Report

Emphasis of Matter and Other Matter Paragraphs

When to Include These Paragraphs

In certain situations, the accountant may need to include additional paragraphs in the review report to draw attention to specific matters that are important for users to understand the financial statements or the review engagement. These paragraphs are known as “Emphasis of Matter” and “Other Matter” paragraphs.

• Emphasis of Matter Paragraph: This paragraph is used when the accountant wishes to emphasize a matter that is appropriately presented or disclosed in the financial statements but is of such importance that it is fundamental to users’ understanding. Examples include significant uncertainties, such as pending litigation, or significant subsequent events that occurred after the balance sheet date.
• Other Matter Paragraph: This paragraph is used to highlight matters other than those presented or disclosed in the financial statements that are relevant to users’ understanding of the review, the accountant’s responsibilities, or the report. For example, this might include explaining why the accountant cannot withdraw from an engagement after discovering a significant issue or disclosing that the financial statements of a prior period were audited by another auditor.

Examples and Sample Wording

Example of an Emphasis of Matter Paragraph:

Emphasis of Matter

We draw attention to Note X to the financial statements, which describes the uncertainty related to the outcome of the pending litigation against the Company. Our conclusion is not modified in respect of this matter.

Example of an Other Matter Paragraph:

Other Matter

The financial statements of ABC Company for the year ended December 31, 20X1, were reviewed by another accountant who expressed an unmodified conclusion on those statements on February 15, 20X2.

Modifications Due to Departure from the Applicable Financial Reporting Framework

Procedures When Financial Statements Are Not in Accordance with the Applicable Framework

When the financial statements are not in accordance with the applicable financial reporting framework, and the accountant becomes aware of material misstatements, the standard review report must be modified to reflect these issues. The accountant should first communicate these findings to management and request that the necessary adjustments be made to correct the misstatements. If management refuses to make these adjustments, the accountant is required to modify the report to indicate the nature of the departure and its effects on the financial statements.

How to Report Issues Like Material Misstatements

If material misstatements exist and are not corrected by management, the accountant must include a “Basis for Conclusion Modification” paragraph before the conclusion paragraph in the report. This paragraph should describe the nature of the misstatement, provide details about the specific financial statement items affected, and quantify the financial impact, if possible. Following this, the conclusion paragraph must be modified to reflect that, except for the effects of the identified issues, the financial statements are in accordance with the applicable financial reporting framework.

Example of a Basis for Conclusion Modification Paragraph:

Basis for Conclusion Modification

The Company has not recognized a liability for a significant legal claim, which management estimates at $X. This liability should have been recognized in accordance with [applicable financial reporting framework]. If this liability had been recognized, the liabilities would increase by $X, and net income would decrease by $X.

Modified Conclusion Paragraph:

Conclusion

Based on our review, except for the effects of the matter described in the Basis for Conclusion Modification paragraph, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in accordance with [applicable financial reporting framework].

Modifications Due to Incomplete Review

Reporting When the Review Is Incomplete or the Accountant Cannot Conclude

In some cases, the accountant may be unable to complete the review or may not be able to reach a conclusion due to limitations on the scope of the review or other factors, such as a lack of sufficient appropriate evidence. When this occurs, the report must be modified to reflect that the review is incomplete, and the accountant cannot provide a conclusion on the financial statements. The report should include a description of the circumstances that led to the incomplete review and the reasons for the accountant’s inability to reach a conclusion.

Sample Wording for Modified Conclusions

If the review cannot be completed, the accountant may either disclaim a conclusion or withdraw from the engagement, depending on the circumstances. If a disclaimer is issued, it should be clearly stated in the report.

Example of a Disclaimer of Conclusion:

Disclaimer of Conclusion

Due to the scope limitation described in the Basis for Disclaimer paragraph, we were unable to complete our review of the financial statements. Accordingly, we do not express a conclusion on these financial statements.

Basis for Disclaimer Paragraph:

Basis for Disclaimer

We were unable to obtain sufficient appropriate evidence concerning [specific issue] because management did not provide us with the necessary documentation. As a result, we could not complete the review procedures as required by SSARS.

Illustrative Examples of Review Engagement Reports

Standard Review Report

A Complete Example of a Standard Review Report

Below is an example of a standard review report that complies with SSARS and includes all the essential elements required for a review engagement:

Independent Accountant’s Review Report

To the Board of Directors of XYZ Corporation:

We have reviewed the accompanying financial statements of XYZ Corporation, which comprise the balance sheet as of December 31, 20XX, and the related statements of income, changes in equity, and cash flows for the year then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is to express an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Accountant’s Responsibility

Our responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.

Conclusion

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in accordance with accounting principles generally accepted in the United States of America.

[Accountant’s Signature]
[Accountant’s Name]
[Date of the Review Report]

Modified Review Report

Examples with Modifications for Emphasis of Matter, Other Matter, and Departures from the Framework

Example 1: Emphasis of Matter Paragraph

Independent Accountant’s Review Report

To the Board of Directors of ABC Company:

We have reviewed the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20XX, and the related statements of income, changes in equity, and cash flows for the year then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is to express an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Accountant’s Responsibility

Our responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.

Emphasis of Matter

We draw attention to Note X of the financial statements, which describes the uncertainty related to the outcome of a significant litigation matter. Our conclusion is not modified in respect of this matter.

Conclusion

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in accordance with accounting principles generally accepted in the United States of America.

[Accountant’s Signature]
[Accountant’s Name]
[Date of the Review Report]

Example 2: Other Matter Paragraph

Independent Accountant’s Review Report

To the Shareholders of DEF Corporation:

We have reviewed the accompanying financial statements of DEF Corporation, which comprise the balance sheet as of December 31, 20XX, and the related statements of income, changes in equity, and cash flows for the year then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is to express an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Accountant’s Responsibility

Our responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.

Other Matter

The financial statements of DEF Corporation for the year ended December 31, 20XX, were reviewed by another accountant who expressed an unmodified conclusion on those financial statements on February 15, 20XX.

Conclusion

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in accordance with accounting principles generally accepted in the United States of America.

[Accountant’s Signature]
[Accountant’s Name]
[Date of the Review Report]

Example 3: Departure from Applicable Financial Reporting Framework

Independent Accountant’s Review Report

To the Board of Directors of GHI LLC:

We have reviewed the accompanying financial statements of GHI LLC, which comprise the balance sheet as of December 31, 20XX, and the related statements of income, changes in equity, and cash flows for the year then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is to express an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Accountant’s Responsibility

Our responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.

Basis for Conclusion Modification

As discussed in Note Y to the financial statements, GHI LLC has not recorded a liability for a material legal claim, which should have been recognized in accordance with accounting principles generally accepted in the United States of America. If this liability had been recognized, the liabilities would increase by $X and net income would decrease by $X.

Conclusion

Based on our review, except for the effects of the matter described in the Basis for Conclusion Modification paragraph, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in accordance with accounting principles generally accepted in the United States of America.

[Accountant’s Signature]
[Accountant’s Name]
[Date of the Review Report]

Illustrative Wording for Common Situations

Sample Reports for Various Scenarios Encountered in Practice

1. Going Concern Uncertainty:
   • When there is substantial doubt about an entity’s ability to continue as a going concern, an Emphasis of Matter paragraph may be included.
   • Example wording: “We draw attention to Note Z of the financial statements, which indicates that the Company incurred a net loss during the year ended December 31, 20XX and, as of that date, the Company’s current liabilities exceeded its total assets by $X. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Our conclusion is not modified in respect of this matter.”
2. Subsequent Events:
   • If significant events occur after the balance sheet date but before the report date, these should be disclosed, potentially requiring an Emphasis of Matter paragraph.
   • Example wording: “We draw attention to Note A of the financial statements, which describes the effects of a fire that destroyed one of the Company’s warehouses subsequent to the balance sheet date. Our conclusion is not modified in respect of this matter.”
3. Scope Limitation:
   • If the accountant is unable to perform a necessary procedure, this could result in a scope limitation, leading to a modified conclusion or a disclaimer.
   • Example wording for a scope limitation:

Basis for Disclaimer

As discussed in Note B to the financial statements, we were unable to obtain sufficient appropriate evidence regarding the valuation of inventory due to the loss of records resulting from a fire. Consequently, we were unable to complete our review of inventory balances.

Disclaimer of Conclusion

Because of the significance of the matter described in the Basis for Disclaimer paragraph, we are unable to conclude whether any material modifications should be made to the accompanying financial statements for them to be in accordance with accounting principles generally accepted in the United States of America.

[Accountant’s Signature]
[Accountant’s Name]
[Date of the Review Report]

4. Correction of Prior Period Misstatements:
   • If the current financial statements include corrections of misstatements from prior periods, an Other Matter paragraph might be used to highlight this.
   • Example wording: “As discussed in Note C to the financial statements, the Company has restated its financial statements for the year ended December 31, 20XX to correct a misstatement. Our conclusion is not modified in respect of this matter.”
5. Use of a Different Reporting Framework:
   • When financial statements are prepared using a special purpose framework (e.g., cash basis, tax basis), the report should reflect this, often with modifications to the standard wording.
   • Example wording: “The accompanying financial statements have been prepared on the cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our conclusion is not modified in respect of this matter.”

These illustrative examples provide a guide for accountants on how to appropriately modify the standard review report to reflect various common situations encountered in practice. Each modification ensures that the report is both accurate and in compliance with the relevant standards, thereby effectively communicating the accountant’s findings and the context of the review to users of the financial statements.

Best Practices for Drafting and Reviewing the Accountant’s Report

Clarity and Precision in Language

Importance of Clear and Unambiguous Language

When drafting the accountant’s report for a review engagement, it is crucial to use clear and unambiguous language. The report serves as a key communication tool between the accountant and the users of the financial statements, such as management, investors, or regulatory bodies. To ensure the report effectively conveys the accountant’s findings, every word and phrase must be chosen carefully to avoid misinterpretation. Ambiguity or unclear wording can lead to misunderstandings about the scope of the review, the level of assurance provided, or the nature of any modifications or emphasis added to the report.

Clear language not only improves comprehension but also reinforces the accountant’s credibility. By avoiding vague expressions and ensuring that the report is straightforward and easy to understand, the accountant enhances the report’s utility and reliability for decision-making purposes.

Avoiding Jargon and Ensuring the Report Is Understandable to the Intended Users

While accounting professionals may be comfortable with industry-specific terminology, the intended users of the accountant’s report may not be. Therefore, it is essential to avoid jargon or overly technical language that could confuse or alienate readers who are not familiar with accounting standards or practices. Instead, use plain language whenever possible to explain complex concepts or findings.

When technical terms are unavoidable, consider providing brief explanations or context to help non-expert readers grasp the meaning. The goal is to ensure that all users, regardless of their accounting knowledge, can fully understand the report’s content and implications.

Consistency with Professional Standards

Ensuring the Report Adheres Strictly to SSARS and Other Relevant Guidelines

The accountant’s report must adhere strictly to the Statements on Standards for Accounting and Review Services (SSARS) and any other relevant guidelines, such as those issued by the American Institute of Certified Public Accountants (AICPA). Consistency with these professional standards is not only a requirement but also a best practice that ensures the report’s credibility and legal defensibility.

To maintain consistency, the accountant should:

• Follow the prescribed structure: Ensure that all required sections—such as the title, introductory paragraph, management’s responsibility, accountant’s responsibility, conclusion, and signature—are included and correctly formatted.
• Use standard language: Where SSARS prescribes specific wording, such as in the conclusion paragraph, it is important to use that language verbatim to avoid any misinterpretation or deviation from the standard.
• Apply modifications correctly: If modifications are necessary due to specific circumstances (e.g., emphasis of matter, scope limitations), they should be applied in a manner that is consistent with SSARS guidelines.

Adherence to these standards also ensures that the report can withstand scrutiny from regulators, legal authorities, or other professional accountants who may review the engagement.

Review and Quality Control

The Importance of Internal Review Processes to Ensure Accuracy and Compliance

Before the accountant’s report is finalized and issued, it is essential to conduct a thorough internal review. This review process should involve multiple layers of scrutiny to ensure that the report is accurate, complete, and compliant with all relevant standards.

Internal review processes might include:

• Peer review: Having another accountant or team member review the report for accuracy and consistency.
• Checklist review: Using a checklist based on SSARS requirements to verify that all necessary elements are included and correctly presented.
• Quality control procedures: Implementing firm-wide quality control procedures, such as engagement quality control reviews (EQCRs), to ensure that the report meets the firm’s and the profession’s standards.

A robust internal review process helps catch and correct any errors or omissions before the report is issued, thus preventing potential issues that could arise from inaccurate or non-compliant reporting.

Common Pitfalls and How to Avoid Them

Even with a strong review process in place, certain common pitfalls can still occur during the drafting and review of the accountant’s report. Some of these include:

• Inconsistent use of terms: Ensure that terms and phrases are used consistently throughout the report to avoid confusion.
• Omitting required elements: Double-check that all required sections of the report are included, especially when dealing with modifications or special circumstances.
• Overcomplicating language: Aim for simplicity in language. Avoid overcomplicating the report with unnecessary technical details or verbose explanations.
• Failing to update for new standards: Regularly review updates to SSARS and other relevant guidelines to ensure the report reflects the most current standards.

By being aware of these pitfalls and taking proactive steps to avoid them, accountants can produce high-quality reports that meet professional standards and serve the needs of their clients effectively.

Conclusion

Recap of Key Points

Throughout this article, we have explored the critical elements that make up an accountant’s report for a review engagement and the importance of each component. We began by discussing the essential elements of the report, such as the title, addressee, introductory paragraph, management’s responsibility, accountant’s responsibility, conclusion, signature, and date. Each of these elements serves a specific purpose in clearly communicating the results of the review and ensuring that users of the financial statements understand the scope and limitations of the accountant’s work.

We also examined common modifications to the standard report, including when and how to incorporate emphasis of matter, other matter paragraphs, and modifications due to departures from the applicable financial reporting framework or incomplete reviews. Additionally, we provided illustrative examples of review engagement reports, offering practical guidance on how to draft reports that meet the required standards while addressing specific scenarios.

Finally, we covered best practices for drafting and reviewing the accountant’s report, emphasizing the importance of clarity and precision in language, consistency with professional standards, and the implementation of robust internal review processes to ensure accuracy and compliance.

Final Thoughts

The accountant’s report is a vital document that conveys the results of a review engagement to stakeholders who rely on the financial statements for decision-making. As such, it is imperative that accountants adhere to professional standards and best practices in all aspects of report preparation and review. By doing so, accountants not only fulfill their professional obligations but also contribute to the transparency and reliability of financial reporting.

In conclusion, whether you are a seasoned accountant or preparing for the AUD CPA exam, it is essential to approach each review engagement with diligence, attention to detail, and a commitment to upholding the highest standards of the profession. By following the guidance provided in this article, you can ensure that your reports are both compliant with relevant standards and effectively communicate the results of your review engagements.