 Hello and welcome to this session. This is Professor Farhad in which we would look at review engagement under the attestation standards Now review is two out of three Two out of three in terms of the level of service and the prior session we looked at the examination, which was one Out of three now two out of three in the the next session We would look at agreed upon procedures. So what is a review? Well, when we provide a review or when we engage in a review engagement under the attestation standard We are providing a conclusion now We have to be very careful with the terminology Because when we provide a review engagement, we're gonna come up with a conclusion at the end if you remember when we did an Examination engagement we provide an opinion. There's a difference between a review and an engaged review and examination an examination you provide an opinion and a review you provide a conclusion and So the practitioner in a review obtained obtains limited assurance Which it's called also negative about whether material modification should be made to the subject matter in order for it to be in accordance With some criteria the subject matter or the assertion for that matter Now the first thing I want to tell you upfront is the work is Substantially less than an examination It's a lower level of assurance because examination gives you a positive examination gives you a positive Assurance remember the examination was the closest thing to an audit a review is the closest thing to a review when we review the financial statements and you will see that later but Examination when we think of examination think of an audit Okay, think of an audit when you think of a review engagement under the attestation standard It's the same thing as a review engagement for the financial statements It's a lower level of assurance and you will notice it's so important that we will mention it's a lower level of Assurance then the examination in the report itself when we talk about this in the next Recording so we'll talk about I will show you a review report complete Now let's talk about an engagement letter Do we need an engagement letter? Of course you are giving an assurance You want to have an engagement letter or a suitable alternative like a contract and usually you should spell out the following the Scope and objective of the work what type of work and for what purpose as a practitioner What is what is our responsibility? What is the engagement or the responsible party responsibility? Remember the engagement and the responsible party might be the same or they might be different I'm always gonna explain this because many people they get confused. What do you mean by the engagement party? What do you mean by the responsible party think about the practitioner as a CPA that's that's one party now a Hospital and I'm gonna mention the name of a hospital Lehigh Valley Hospital The Lehigh Valley Hospital can contract with the CPA to review their billing process Specifically, let's even be more specific billing the government when they build the government They want to have a review engagement to make sure that their system is working properly Well, the CPA can conduct that review for them. Therefore the engagement party is Lehigh Valley Hospital Lehigh Valley Hospital and the responsible party for the subject matter Lehigh Valley Hospital now we could also have Since this is one engagement. This is one party two parties to this engagement in both the second party is the engagement as well as the Responsible party or we can have the state of Pennsylvania engaging the CPA To report on the billing of the Lehigh Valley Hospital because the state government Reimburs many clients many patients at the Lehigh Valley Hospital Therefore, what's happening here the state government is the engagement party and the responsible party is The Lehigh Valley Hospital, so that's why they could be different just know that they could be different No, what an engagement party versus the responsible party explain any inherent limitation of a review Also, we need to spell out the criteria being used to evaluate the subject matter Let's assume the billing process. What is the criteria for that? Also a representation letter is provided by the engagement party at the end of the engagement, which is written representation We'll talk about that later a Statement that a review is substantially less in scope than an examination and therefore we don't express an opinion So notice even in the in even in the engagement letter We spell this out notice it was on the first slide that it's lower than a lower than an examination I told you about it. This is the second time. I told you that a review is a lower Let is substantially less in scope and you're gonna see in the report will mention it again in the report now This engagement letter is needed for each engagement Therefore every year you'll have to renew it and you don't have to rewrite the whole thing Just basically you communicate with the engagement party that we are renewing the contract Basically in a form of an email and there is no changes to the terms of the agreement Therefore, we renewed the engagement before we proceed any further I have a public announcement about my company far hat lectures calm Far hat accounting lectures is a supplemental educational tool That's gonna help you with your CPA exam preparation as well as your accounting courses My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles My accounting courses are aligned with your accounting courses broken down by chapter and topics My resources consist of Lectures multiple choice questions through false questions as well as exercises Go ahead start your free trial today. No obligation. No credit card required Now assertions about the subject matter. This is the same as examination It means when when they provide you the assertions Whatever they are doing about the subject matter If the engaging party is the responsible party So the Lehigh Valley Hospital is the responsible party and refused to provide written assertions This is what we want to have done. This is our claim about the subject or this is what we want you to review Guess what? We cannot know assurance without written assertions. So we want to see what do you want us to work on? So simply put we withdraw from the engagement when the engaging party is not the responsible party and the responsible party reviews To provide a written assertion. Now, we're gonna talk about this later We can disclose in this in the report and restrict what we do is we'll ask the responsible We'll ask the responsible party for some clarification if we get some oral classic and clarification We're gonna go ahead and proceed that we will disclose and restrict now bear in mind Even if the responsible party was not present or in charge for the period of time covered by the written assertion So sometimes what could happen one company could buy another company and there's could be a change of management So the new management was not present when the assertion for the period that the assertions are covered It does not really matter the responsible party is still responsible for the practitioner Report period and applies the examination as well. I did not mention this examination. It also applies to examination Now once we have the review ready, we have to plan what what what are the planning step in a review? What we're gonna obtain sufficient understanding of the subject matter. That's obvious We need to understand what are we dealing with understand the circumstances of the engagement? Why why are they asking us to report on this? Okay, in order to design the appropriate step and plan the procedures to achieve The objective of the engagement now we're gonna look at the procedures. What procedures do we perform? What's the performance? How do we perform this review? Well a review is consist of two things One is analytical procedures AP and two is inquiries now If the subject matter is not of quantitative So it's qualitative matter like the the quality of the customer service then we would not use analytical procedures But if we if we are using numbers, we will choose the proper analytical procedures develop expectation to identify any material in the statement Review the reliability of data because analytical procedures uses numbers You want to make sure those numbers are reliable. Otherwise if the numbers are no good our analysis is not good Then we're gonna run the analytical procedures and make inferences. That's one One thing we do in the review the second thing do we do is inquiries What is inquiries simply put asking questions ask a subject matter has been prepared in accordance to the criteria Simply ask them. Are you doing the work that you're supposed to do? Ask them about their knowledge of any fraud Any errors ask them about the knowledge of any non-compliance with laws and regulations You might be saying well just you're asking them Well, that's what that's why a review is a lower a lower assurance if you remember go to the examination and examination We do much much work and under the performance section because we are giving a higher a higher assurance here We are giving a lower assurance So we're only providing limited assurance and that's why that's the amount of work that we will do and basically when you review financial statements under SS the SS ARS same thing analytical procedures and inquiries now You're gonna increase the focus of areas of the engagement that that have an increased risk of material in the statement So if you find out there's an area where it needs more work Of course, you're gonna do more analytical procedure or ask more questions If you think there's an increase of risk of material misstatement now Can you use a specialist in a review same thing as examination? Usually it's not required again lower level But if you if you need to review the specialist competencies and objectivity those are the same as examination Understand the specialist's expertise agree on the scope of the work to be performed and evaluate their work in terms of the In terms of the purpose of the engagement and the engagement letter with the specialist is option It's up to you. It's between you and the specialist and whether you want to mention them or not. That's also optional Do you rely on the internal control? Same as examination if you if you want to rely you want to evaluate their competencies and objectivity Evaluate the system. Are they following internal control constantly? You should have an understanding with the responsible party that the people in the internal control They're gonna follow our direction give us the information give us access to the data that we need and we need to review the work of internal auditors and review Significant the judgments of course done by the internal control if it applies to our engagement to our Assertions or the subject matter? Again written representation a written representation by management provided by the practitioner to confirm that what first of all Let's talk about written representation because in the previous recording when I did the examination I did not really define written representation What is a written representation and it's done in an audit simply put as a statement by management provided to the practitioner to confirm Certain matters or support audit evidence So I'm gonna show you what the written represents a typical written representation will be for an audit explain it Then you will you will get the idea for an audit management has provided the auditor with all relevant information and access as agreed upon in The term of the engagement. So you have to tell them they have to admit that they gave you everything and Everything that's recorded are reflect everything. That's record everything that happened all the transaction are reflected in the financial statement You want them to say this why? Because you want them to admit to it because you want to cover yourself You want to tell them look you're telling me you provided me with everything Therefore everything that I worked with is have indeed everything but they're telling you this as far as the review the written representation is similar to As far as for the review the written representation is similar to examination as per the engagement letter Practitioner requests a written representation including the responsible party assertion about the subject matter When the responsible party at the same time as the engagement party and refuses to provide a letter That's it as we mentioned earlier stop. You cannot have you cannot do the review unless There is law and regulation that override this You know of the state or federal government said don't worry about it Just go ahead and do it by law then you will do it if the engaging party is not the responsible party You would request additional information from the engagement party because now they are the engaging But they're not responsible you want more information from them The practitioner should make inquiries of the responsible party and see seek some order responses from the responsible party Although they're not the engagement party They don't want to give you a written see if you can get some order responses If those order responses are satisfactory you would restrict the report to the engagement party itself If they are not satisfactory Or no responses were given either in writing or orally withdraw from the engagement of possible Okay, so the written representation should address the subject matter and the period covered by the Practitioners report and those written representation date should be the same as the practitioners report because they are covering the same period Documentation is similar to examination First you have to comply with the AI CPA and any applicable legal and regulatory requirements for the documentation The documentation should be good enough where any practitioner Should we walk into the door and be able to follow your work? They stand alone some good characteristics of good documentation Who performed the work who reviewed the work the date it was completed Any discussion that That took place about any significant issues document any refusal For providing a written assertion or when the written assertion is not reliable discuss policy about Acceptance and continuance of the client document how the practitioner dealt with any inconsistencies and any anything that's you believe it's relevant. It's going to help the Another person another party review the engagement. You would include it in the documentation What should you do now go to farhat lectures dot com work mcq's through false multiple choice in the next session I would look at a review report and I'll go over the review report and it will confirm It will fill in some of the gaps that we need to in order to understand a review because once you look at the report You would look at the end product and this is what I discussed in this only. What is a review? What do we need to do in order to? Complete a review but look at the review report will bring everything together that will be in the next session Good luck study hard and of course stay safe