While many people understand what’s meant by an accounting audit, they may or may not have heard of a review engagement. This type of evaluation is less comprehensive than an audit, but it still provides valuable insights into how well the company’s records are being maintained. Here are some examples of what can be accomplished with the aid of a CPA review engagement and how it can help you prepare for an official audit.
General Compliance With GAAP Standards
One of the factors that’s examined during this type of engagement is how well the business is following generally accepted accounting principles. Given that GAAP is composed of steps that help to ensure every debit and credit is accounted for properly and nothing is overlooked, this is important.
The nice thing is that if there does seem to be any deviation from GAAP, the review engagement will identify the discrepancy and provide the business owner with the chance to correct it. That’s especially important if the audit is being done in preparation for meeting with revenue agents or possibly preparing the business for sale.
Lack of Obvious Posting Issues
Within the scope of evaluating the accounting procedures used, there’s also the matter of identifying any posting issues that may lead to a false picture of the company finances. These are often oversights on the part of those who keep the records. It’s easy enough to fail to post something like an invoice payment, or to note that a payment was applied to the wrong invoice.
In many instances, the posting issues that are found will be those that tend to stand out more. It doesn’t mean that the review engagement found all of the issues. What it does mean is there are some present and it would be a good idea to take a deeper look into the books and take measures to correct anything that’s found.
Correctness of Statements Based on the Information Presented
Financials statements and reports are often issued as a way to keep owners, investors, and other interested parties up to date on the company’s financial health. Part of the review process is to go over some of those statements to determine if everything appears to be in order. When the columns balance properly and the figures appear to be a true reflection of the information found in the general ledger and other places, all is well.
If there appears to be some discrepancy, that’s when the CPA conducting the engagement will recommend going back and finding where the error occurred. In many instances, it does have to do with something that was posted in error or some other type of clerical issue that can be corrected with relative ease.
Indications That an Additional Audit is Needed
If there appear to be multiple issues uncovered during the review, that may be grounds for the CPA to recommend an independent audit. This is typically done to ensure that all issues are found and corrected before it’s time to prepare reports for quarterly earnings meetings, close out a period and remit tax payments, or wrap up a fiscal year and provide final reports to investors.
Keep in mind that finding issues during a review engagement doesn’t mean there’s anything nefarious taking place. What it does mean is there are some areas where the accounting process can be improved. View the engagement as a resource that helps make things better and put the findings to good use. In the long run, you and your company will benefit.