Review of financial statements is a type of negative assurance engagement where auditors are engaged to review the financial statements of the entity.
A review of financial statement engagement creates a moderate level of assurance that the information subject to review is free of material misstatement, this is expressed in the form of negative assurance. The auditor needs to disclose if they met any information during the assignment that creates reasons for them to believe that the financial statements do not show a true and fair representation of the company or the financial statements do not comply with the specific accounting standards.
The objective of a review of financial statements is to enable a practitioner to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the practitioner’s attention that causes the practitioner to believe that the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework (negative assurance).
Purpose of a review of financial statement is to provide external parties with a basic level of assurance on the accuracy of financial statements. In other words, while an audit extensively examines whether or not the financial statements are free of material misstatements, reviews deduce whether or not the financial statements are plausible or credible.
In a review of financial statement, the auditor is required to undertake the process that is important to give a proper base for obtaining moderate assurance, in essence, no relevant changes are necessary to be made in the financial statements of the company to conform to the financial reporting framework.
A review engagement differs significantly from an audit engagement since the former provides less assurance to the intended user. A review engagement is an attractive proposition for a company wanting to provide immediate assurance about its financial picture.
Procedures for conducting a review of financial statements are generally limited to analytical procedures and inquiry of management, as well as obtaining management representations of the completeness of the information provided.
Based on the results of a review, the company will be able to obtain information about the major problems in the enterprise activities, which serves a basis for making prompt decisions and conducting more in-depth checks and audit.