But why do businesses need a financial statement review requirements? Whether you’re applying for a loan, attracting investors, or complying with regulatory requirements, having credible financial statements can make all the difference. This process involves an accountant conducting analytical procedures and inquiries to assess whether your financial information is presented fairly.
In this article, we’ll break down the key requirements, procedures, and benefits of a reviewed financial statement which will help you understand how they can enhance your business’s financial transparency. Let’s dive in!
What Is a Reviewed Financial Statement?
A reviewed financial statement is an assurance engagement where a Certified Public Accountant (CPA) examines your financial records to determine whether they are plausible and free from material misstatements. Unlike an audit, which provides reasonable assurance, a review involves analytical procedures and inquiries rather than in-depth testing of transactions.
A review is ideal for businesses that need some level of verification but don’t require the extensive procedures of a full audit. Lenders, investors, and regulatory agencies often accept reviewed financial statements as a sign of credibility.
Addressing Identified Misstatements
During a reviewed financial statement, a CPA may identify misstatements that need to be addressed. These misstatements can be material or immaterial, and how they are handled can impact the final review report.
Communication with Management
Once misstatements are found, the CPA communicates with management to discuss their nature, possible causes, and necessary corrections. Effective communication ensures that management understands the implications of these errors and can take corrective action.
Correction of Material Misstatements
If the misstatements are material, meaning they significantly impact the financial statements, they must be corrected before the review can be finalized. The CPA may provide recommendations on how to adjust financial records while Verifying compliance with accounting standards.
Implications of Uncorrected Misstatements on the Review Report
If management chooses not to correct certain misstatements, the CPA must evaluate whether they affect the overall reliability of the financial statements. Significant uncorrected misstatements could lead to a modified review report, which might raise red flags for lenders, investors, or regulatory agencies.
Reviewed Financial Statement Cost
The cost of a reviewed financial statement varies based on several key factors:
Factors Influencing Cost
- Company Size: Larger companies with complex operations require more time and effort, increasing costs.
- Industry: Certain industries, such as finance or healthcare, have complex regulations that demand more extensive reviews.
- Record Quality: Businesses with well-organized financial records will likely pay less than those with disorganized books requiring additional CPA work.
Cost Comparison Between Reviews and Audits
| Service | Average Cost | Time Required | Purpose |
| Reviewed Financial Statement | Starting from $499 | within 36 hours | Moderate assurance for lenders/investors |
| Audited Financial Statement | Starting from $649 | within 48 hours | High-level assurance for regulatory compliance |
A review is a cost-effective alternative to an audit for businesses that need assurance but don’t require full-scale verification.
Best Practices for an Effective Review
Automating Routine Processes
Automating data entry, reconciliations, and report generation helps businesses streamline their financial statement preparation which reduces errors and improves efficiency.
Implementing Data Visualization for Better Insights
Financial dashboards and data visualization tools allow businesses to interpret financial data more easily, leading to better decision-making and improved strategic planning.
Ensuring Continuous Professional Development
CPAs and finance teams should engage in ongoing training to stay updated with the latest accounting standards and best practices, Verifying compliance and efficiency in financial reviews.
Common Challenges and How to Overcome Them
Dealing with Incomplete or Inaccurate Records
Solution: Implement strong bookkeeping practices and conduct regular internal reviews to ensure records are complete and accurate.
Managing Tight Deadlines
Solution: Plan ahead and establish a clear timeline with the CPA to ensure all required documents are prepared in advance.
Ensuring Effective Communication with Management
Solution: Foster an open dialogue between CPAs and management to address financial concerns proactively. Regular meetings can prevent last-minute surprises.
