Financial Statement Reviews: Common Issues and Frequently Asked Questions
Plain-English answers to the most common financial statement review questions — requirements, scope, assurance levels, records, and how to choose the right CPA firm.
Assurance Services
Questions about financial statement reviews usually concern requirements, scope, assurance, timing, records, and the meaning of the final report. This page addresses the most common issues in plain English and identifies the decisions management should settle before engaging a CPA.
The issues that deserve attention first
A review engagement applies inquiry and analytical procedures to financial statements and management's accounting. It does not include the audit-level risk assessment, control testing, substantive testing, confirmations, or inspection ordinarily associated with an audit, although additional procedures may be required when the accountant becomes aware that information may be materially misstated.
The most effective response is not to create more year-end spreadsheets. It is to establish a close process in which operational records, subsidiary systems, the general ledger, and the financial statements reconcile on a repeatable schedule.
- Expecting a review to satisfy a contract that explicitly requires an audit
- Providing unreconciled books and asking the accountant to both close the records and immediately review them
- Omitting note disclosures or significant estimates because the engagement is less extensive than an audit
- Failing to investigate unexpected trends before the accountant's analytical procedures
- Confusing limited assurance with a guarantee or fraud examination
How to reduce the risk
Management can improve both reporting quality and audit efficiency through a small number of durable practices:
- Close and reconcile significant accounts monthly, with evidence of preparation and review
- Maintain current contracts, policies, minutes, approvals, estimates, and third-party reports in a controlled repository
- Assign ownership for every material schedule and document the source, method, assumptions, and review
- Investigate unusual trends and old reconciling items before the auditor asks about them
- Communicate new transactions, disputes, financing, system changes, control failures, and suspected fraud promptly
- Perform a pre-audit quality review using the prior-year adjustments and management comments as a checklist
Frequently asked questions
What assurance does a review provide?
A review provides limited assurance that the accountant is not aware of material modifications needed for the financial statements to conform to the applicable reporting framework.
How is a review different from an audit?
A review primarily uses inquiry and analytical procedures. An audit provides reasonable assurance and includes a broader risk assessment and procedures such as inspection, observation, confirmation, recalculation, and testing as appropriate.
Must the CPA be independent?
Yes. Independence is required for a review engagement.
Can reviewed statements use the income-tax basis?
Yes, when a special-purpose framework is appropriate and acceptable to users. The statements and report must identify the framework and include suitable disclosures.
Does a review include internal-control testing?
No. A review does not ordinarily include obtaining an understanding of internal control for audit planning or testing controls. The accountant still considers information learned during the engagement.
Can a review be upgraded to an audit later?
Possibly, but the auditor will need additional planning and evidence. If an audit may be required, discuss it early so confirmations, inventory observations, and cutoff evidence are not lost.
Questions to ask a prospective CPA firm
The engagement partner should be able to answer practical questions before appointment:
- What experience does the team have with financial statement reviews and the applicable reporting framework?
- Which standards, regulatory guides, contractual provisions, or submission requirements will govern the work?
- Who will manage the engagement day to day, and when will the partner communicate with management and governance?
- What information is needed before fieldwork, what will be selected later, and how will secure documents be exchanged?
- What assumptions support the fee and timetable, and how will scope changes or readiness problems be handled?
- What independence, licensing, peer review, quality management, specialist, or continuing education considerations apply?
Choosing the right assurance level
An audit provides reasonable assurance and an opinion on the financial statements. A review provides limited assurance principally through inquiry and analytical procedures. A compilation presents financial information with no assurance. Compliance examinations, agreed-upon procedures, single audits, and program-specific engagements have different objectives and should not be substituted solely because their names sound similar.
Start with the exact user requirement and the decision the report must support. Selecting too little assurance can lead to rejection and rework; selecting more than users need can add cost and time without a corresponding benefit.
Next step
Schedule a scoping discussion with Dohan CPA to review the reporting requirement, intended users, current records, prior reports, and deadline for financial statement reviews. The firm should confirm engagement acceptance, independence, staffing, and final scope before any service is promised.
Authoritative sources
- AICPA: What is the difference between a compilation, review, and audit? - AICPA & CIMA
- AICPA: Preparation, Compilation, and Review Standards - AICPA & CIMA
- FASB: Accounting Standards Updates Issued - Financial Accounting Standards Board
General educational information only. This page is not accounting, auditing, tax, investment, or legal advice and does not create a CPA-client relationship. Requirements and standards can change and depend on specific facts and agreements.