In 2017, CPA Canada released an update to the standards for review engagements called “CSRE 2400 Engagements to Review Historical Financial Statements”. This standard was released to be consistent with international review standards as well as to be more consistent with concepts in the auditing handbook. CSRE 2400 is effective for fiscal years ending on or after December 14, 2017.
This new standard does not affect audit or compilation engagements and only applies to reviews. This blog will summarize the significant changes in the new standard and how it may impact your business.
The new standard introduces the term “limited assurance”. While this is a new concept the level of assurance provided under a review engagement will remain the same. Limited assurance refers to the concept that the accountant provides a lower level of assurance then in an audit. An audit provides reasonable assurance whereas a review provides limited or sometimes what is called negative assurance. Negative assurance implies that the accountant has not encountered any evidence that would indicate that the financial statements are not presented fairly in accordance with the accounting framework.
Procedures that a public accountant would typically undertake in a review engagement would be limited to inquiry, discussion and analytical review. However, the new standard provides insight regarding circumstances where incremental procedures may be performed.
A notable change to the standard is the actual review engagement report that is provided by the public accountant. The new report has been updated and expanded (check out our New Review Engagement Standards Guide for a Sample). The new report now describes management’s responsibilities as well as the practitioner’s responsibility (the public accountant) and refers to the concept of limited assurance.
Another notable change would be with respect to additional communications and procedures public accountants are required to perform as a result of the new standard. Public accountants are now required to understand the company’s internal control and accounting environment as well as identify areas where misstatements are likely to occur. This may require some additional time to be spent documenting your company’s internal control process with your public accountant and would include key business processes, internal controls and systems descriptions (Sales/Receivables, Inventory/Cost of Sales, Purchases/Payables, Payroll etc.) as well as a discussion on various risks your business faces.
The new standard will also require new engagement letters which include the updated review engagement report.
As a result of the additional time and effort required to implement this new standard there may be additional fees incurred for year-end review engagements. As public accountants, we will do our best to keep the additional time and effort required on our side as well as yours as efficient as possible. At Welch LLP we plan on working with our clients to provide a clear and transparent discussion around the additional work and potential for additional fees.
Do not hesitate to contact your advisor at Welch LLP or any of the following individuals if you are looking for more information on the change in standards and how it will impact your business.
Are you looking for more information about the New Review Engagement Standards? Need a sample to follow?
Don’t worry, we have you covered!
Our New Review Engagement Standards Guide covers everything you need to know, including:
- Changes you should prepare for
- All about ‘limited assurance’
- Additional communications & procedures
- Review Engagement Sample