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CPA Canada’s New Review Engagement Standard: What to Expect

September 12, 2017

Does your company require us to perform a review of its financial statements?  You should be aware that the review engagement standards are changing. DMCL will be applying the new review engagement standard, Canadian Standard on Review Engagements (CSRE) 2400, Engagements to Review Historical Financial Statements, as required by CPA Canada, for reviews on your annual financial statements, for periods ending on or after December 14, 2017.

Note that CSRE 2400 does not apply when the auditor is engaged to review interim financial statements and we will continue to use the existing interim review standard.

What should you expect?

  • New letters: DMCL will require you to sign a new engagement letter. This letter will explain your responsibilities and your practitioner’s responsibilities relating to the review engagement. There may also be changes to the representation letter.
  • More communication: The new review engagement standard includes a greater emphasis on communication with you as management (and those charged with governance if separate), including:
    1. communication of all misstatements accumulated during the review and a request that management correct those misstatements
    2. a request for written representation of management about whether they believe the effects of uncorrected misstatements are immaterial, individually or in the aggregate, to the financial statements as a whole.
  • More discussion and inquiry: The new review engagement standard emphasizes focusing on the areas where material misstatements are likely to occur. We are required to better understand your business and its processes and controls.  Therefore, different questions may be asked because there are more specific requirements in this new standard regarding the inquiry and analytics to be performed.
  • A new report: The most significant change you may notice is to the review engagement report (the communication attached to the reviewed financial statements).

What are the changes to the review engagement report?

You may want to communicate these changes to the users of your financial statements:

  • The previous review engagement report briefly described what a review is and provided the practitioner’s conclusion.
  • The new report summarizes both management’s and the practitioner’s responsibilities (describing a review engagement as a limited assurance engagement) and then provides the practitioner’s conclusion.
  • Based on certain circumstances, the review engagement report may also include an Emphasis of Matter paragraph or Other Matter paragraph:
    1. Emphasis of Matter paragraphs will be included in our report if it is necessary to draw users’ attention to a matter presented or disclosed in the financial statements that is fundamental to understanding of the financial statements. Such paragraphs will refer only to information presented or disclosed in the financial statements.

Examples include:

  • when the financial statements are for a special purpose (e.g., financial statements prepared in accordance with the financial reporting provisions of an agreement) because they may not be suitable for another purpose
  • if a material uncertainty exists relating to going concern.

Other Matter paragraphs will be included in our report if necessary to communicate a matter other than those presented or disclosed in the financial statements that is relevant to users’ understanding of the review, the practitioner’s responsibilities or the practitioner’s report.

Examples include:

  • when the prior-period financial statements were reviewed or audited by a predecessor practitioner
  • when the prior-period financial statements were not reviewed or audited.

Remember: A review engagement is not an audit; it is a limited assurance engagement. The procedures performed in a review are substantially less in extent than, and vary in nature from, those performed in an audit.

If you have questions, please contact your DMCL advisor.