Review of Financial Statements

How it differs from an audit

An audit provides reasonable assurance and relies on a wide range of procedures, including third-party confirmations and testing of balances. A review provides limited assurance and costs less precisely because there are fewer procedures.

The practical consequence: a review does not replace a statutory audit where one is required under Article 35 of the Law on Auditing Activity (ZRU-677).

When it is appropriate

• Interim financial statements — quarterly or half-yearly
• The owner's internal need for an independent view without the cost of a full audit
• Situations where limited assurance is sufficient for a counterparty

Basis and procedures

International standards on review engagements are expressly listed among the standards of auditing activity (Art. 9 of ZRU-677). A review (ISRE 2400 — of financial statements, ISRE 2410 — of interim financial information performed by the entity's auditor) consists of inquiries of management and analytical procedures; confirmations, stocktake observation and detailed tests are not performed.

Comparison of engagement types

• audit — reasonable assurance, a positive opinion on reliability;
• review — limited assurance, a conclusion that "nothing has come to our attention that causes us to believe…";
• agreed-upon procedures — no assurance, a list of factual findings;
• compilation — no assurance, preparation of financial statements from the client's data.

Why it does not replace a statutory audit

A statutory audit under Art. 35 of ZRU-677 ends with an auditor's report containing an opinion on reliability (Art. 39). The conclusion of a review is not such an opinion.