Review Engagements are an alternative to full Audits. They are a high-level assessment of financial statements by an independent professional that provides comfort to the users of financial statements (funders, members, owners etc) that nothing has come to the attention of the reviewer that indicates that the financial statements do not give a true and fair view/are not fairly presented.
A pair of new NZ versions of international Review Standards have been released and these apply to all Review Engagements for periods ending on 31 December 2014 and later. These Standards replace the old RS-1 and it's accompanying guidance companion RG-1.
The new standards are as follows:
ISRE (NZ) 2400 - Review of Historical Financial Statements Performed by an Assurance Practitioner who is Not the Auditor of the Entity
NZ SRE 2410 - Review of Financial Statements Performed by the Independent Auditor of the Entity
ISRE (NZ) 2400 is likely to be much more commonly used than NZ SRE 2410. The second standard is used where an Audit is carried out as well as a Review - say where an entity is issuing Interim reports part-way through the year for some reason, or where an entity requires an audit every second year say - and is content with a Review in the intervening periods.
NZ SRE 2410 leans on and draws from the knowledge obtained through the audit procedures. The two have different wording in many places but are essentially covering the same basis requirements of a Review Engagement - Enquiry and Analytical Review - as opposed to detailed substantive testing required as part of a normal Audit Engagement.
The Review Standards also vary from Audit in terms of less emphasis on detailed risk assessment. A Review Engagement is more focussed on a simple assessment of risk of material misstatement. Material or potentially material items in the financial statements and notes are identified and appropriate enquiry or analytical tests are devised to give limited assurance that these are not materially misstated (as opposed to "reasonable assurance" in case of Audit). In cases where there is doubt substantive testing - direct confirmation or detailed testing - may be used, but this is the exception rather than the rule.
Who can elect to have a Review Engagement?
Charities with annual expenditure over $1million required an Audit. Those under $1million but over $500k annual expenditure require either an Audit or Review Engagement. Smaller entities may of course opt for and Audit or Review as at present because of the comfort level it provides to their members, the requirements of their funders or the stipulation of their founding documents.
Large publicly accountable and overseas-owned Companies require a full Audit, however Review Engagements may be appropriate for other Companies to give limited assurance to owners or potential investors.
Who can carry out a Review Engagement?
Large Audits and Reviews must be carried out by a "qualified Auditor". Other Reviews or Audits must comply with the Standards, therefore it makes sense that these be performed by competent Chartered Accountants familiar with the Standards.
Click here for details of the Audit Assistant Review Engagement Templates.
For a great overview of the Review Engagement Standards and process download the IFAC Guide to Review Engagements.