Our sites
- myACCA
- ACCA mail
- ACCA Careers
- ACCA Career Navigator
- ACCA Learning Community
- Your Future
Useful links
- Make a payment
- ACCA-X online courses
- Find an accountant
- ACCA Rulebook
- News
- Work for us
Most popular
- Professional insights
- ACCA Qualification
- Member events and CPD
- Supporting Ukraine
- Past exam papers
An independent review is a limited assurance report that is a mandatory requirement for non-owner-managed companies of a certain size. The size of a company refers to the public interest score attained by that particular company. This score is calculated by allocating one point to each of the following: average number of employees, number of shareholders, each million Rand of turnover, and each million Rand of debt. According to the Companies Regulations, 2011 an independent review is classified as a review engagement in terms of the International Standard on Review Engagements, ISRE 2400.
The workload required for the performance of a review engagement is larger than that required for an accounting officer engagement, but smaller than is required for an audit engagement. Review and audit engagements are classified as assurance engagements, whereas accounting officer, compilation and agreed-upon-procedure engagements are all classified as non-assurance engagements. Review engagements are limited assurance engagements in which a practitioner performs minimum procedures to gather evidence that will enable a limited conclusion on whether financial statements are fairly presented.
Typically, a practitioner evaluates for the benefit of shareholders whether a set of financial statements that are prepared by management, are prepared in accordance with IFRS [criteria]. A practitioner may be asked to conduct a number of procedures with regard to a set of financial statements [subject matter] and issue a written conclusion on his work.
In a review engagement the relationship may be depicted as follows:
- Management is responsible to prepare the financial statements and asserts that it fairly presents the information that it contains
- The practitioner then performs inquiry and analytical procedures with respect to the information, to determine if it is likely prepared in accordance with an appropriate accounting framework
- The practitioner’s concludes whether managements assertions are believable or contain material misstatements
Based on our review, nothing has come to our attention that causes us to believe that these financial statements do not present fairly, in all material respects, the financial position of ABC Company as at February 28, 20X1, and [of] its financial performance and cash flows for the year then ended, in accordance with International Financial Reporting Standards for Small and Medium-sized Entities.
The practitioner can only express a conclusion if appropriate documentation and working papers are available. ISRE 2400 [Revised], requires that the following information be documented:
There are several key differences between an audit, a review, and compilation. Essentially, a compilation requires the auditor to simply present financial statements based on the representations made by management, with no effort to verify this information. In a review engagement, the auditor conducts analytical procedures and makes inquiries to ascertain whether the information contained within the financial statements is correct. The result is a limited level of assurance that the financial statements being presented do not require any material modifications. In an audit engagement, the auditor must corroborate the ending balances in the client's accounts and disclosures. This calls for the examination of source documents, third party confirmations, physical inspections, tests of internal controls, and other procedures as needed.
Comparing an Audit, Review, and Compilation
In short, the differences between an audit, a review, and a compilation are as follows:
Level of assurance. The level of assurance that the financial statements of a client are fairly presented is at its highest for an audit and at its lowest [none at all] for a compilation, with a review somewhere in between.
Reliance on management. In all three cases, the auditor begins with the account balances provided by management, but an audit requires in a significant amount of corroboration of this information. A review requires some testing of the information, while a compilation almost entirely relies on the presented information.
Understanding of internal control. The auditor only tests the internal controls of the client in an audit; no testing is conducted for a review or a compilation.
Work performed. An audit requires a significant number of hours to complete, since there are many audit procedures to be performed. A review requires substantially fewer hours, while the effort associated with a compilation is relatively minor.
Price. It requires vastly more effort for an auditor to complete an audit, so audits are much more expensive than a review, which in turn is more expensive than a compilation.
Another issue is the level of demand for each of these services. The users of financial statements, such as investors and lenders, nearly always demand an audit, since it provides the greatest assurance that what they are reading is a fair representation of the financial results, financial position, and cash flows of the reporting entity.