When engaging a professional accountant or auditor for a review of your financial statements, a crucial document that formalizes the agreement is the Review Engagement Letter. This article will break down what a Sample Review Engagement Letter is, why it's important, and provide examples to help you understand its various components.
What is a Review Engagement Letter and Why is it Important?
A Sample Review Engagement Letter serves as a formal contract between your business and the accountant performing the review. It clearly outlines the scope of work, the responsibilities of both parties, the objective of the review, and the limitations of the service. This document is vital for ensuring clarity and preventing misunderstandings throughout the engagement.
Key elements typically found in a Sample Review Engagement Letter include:
- Identification of the parties involved (your company and the accounting firm).
- The specific financial period being reviewed.
- The objective of the review: to provide limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with a specified accounting framework.
- Management's responsibilities for the financial statements and internal controls.
- The accountant's responsibilities, including performing the review in accordance with applicable standards.
- The expected form of the accountant's report.
- Any limitations on the scope of the review.
- Fees and billing arrangements.
The importance of a Sample Review Engagement Letter cannot be overstated. It acts as a roadmap, guiding both the client and the reviewer, and setting expectations for the engagement. Without it, there's a higher risk of disputes regarding deliverables, timelines, or the level of assurance provided. It also helps the accountant confirm their independence and understanding of the client's business.
Sample Review Engagement Letter for a Small Business Startup
Dear [Client Name],
This letter confirms our understanding of the services we will provide to [Your Company Name] for the financial review covering the period from [Start Date] to [End Date]. We will conduct our review in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants (AICPA).
Our review will consist of inquiries of company personnel and analytical procedures applied to financial data. We will not perform an audit, and accordingly, we will not express an opinion on the financial statements. Our objective is to report whether we are aware of any material modifications that should be made to the financial statements for them to be in conformity with [Accounting Framework, e.g., Generally Accepted Accounting Principles].
You are responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework. You are also responsible for the design and implementation of internal control over financial reporting that you consider necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
We look forward to working with you.
Sincerely,
[Your Accounting Firm Name]
Sample Review Engagement Letter for a Non-Profit Organization
Dear [Board of Directors/Treasurer Name],
This engagement letter outlines the terms of our review of the financial statements of [Non-Profit Organization Name] for the fiscal year ended [End Date]. We will perform our review in accordance with the AICPA's Statements on Standards for Accounting and Review Services.
The purpose of this review is to provide limited assurance that the financial statements are free from material misstatement. We will perform procedures such as inquiries and analytical procedures. We will not be performing an audit, and therefore, we will not express an opinion on the fairness of the financial statements.
Management is responsible for the accuracy and completeness of the financial statements and for maintaining adequate internal controls. We will rely on your representations and the information provided to us.
Please sign and return a copy of this letter to indicate your agreement with these terms.
Best regards,
[Your Accounting Firm Name]
Sample Review Engagement Letter for a Corporation Seeking Limited Assurance
Dear [CEO Name],
This letter confirms our agreement to perform a review of the financial statements of [Corporation Name] for the year ended [End Date]. Our review will be conducted in accordance with the standards established by the AICPA.
The objective of our review is to provide limited assurance that the financial statements are presented fairly, in all material respects, in accordance with [Accounting Framework]. Our procedures will include inquiries and analytical procedures, but will not include obtaining an audit opinion or providing assurance on internal controls.
Your management is responsible for the financial statements, including their accuracy, completeness, and conformity with the applicable accounting framework. We request that you provide us with all relevant financial information and documentation promptly.
We appreciate the opportunity to serve you.
Sincerely,
[Your Accounting Firm Name]
Sample Review Engagement Letter for an Investor Presentation
Subject: Review Engagement Letter for [Company Name] Financial Statements
Dear [Contact Person Name],
This email serves as a Sample Review Engagement Letter for the review of [Company Name]'s financial statements for the period ending [End Date]. This review is being performed to provide limited assurance for the purpose of presentation to potential investors.
Our review will be conducted in accordance with AICPA standards, focusing on inquiries and analytical procedures. We will not be performing an audit and thus will not provide an opinion. The objective is to confirm that we are not aware of any material modifications needed for the statements to conform to [Accounting Framework].
Please confirm your understanding of these terms and your responsibilities in providing accurate and complete information.
Regards,
[Your Accounting Firm Name]
Sample Review Engagement Letter for a Franchisee's Financials
Dear [Franchisor Contact Person],
This engagement letter details our agreement to perform a review of the financial statements for [Franchisee Name], a franchisee of [Franchisor Name], for the fiscal year ending [End Date]. This review is requested to meet the reporting requirements stipulated in your franchise agreement.
We will conduct the review in accordance with AICPA standards, providing limited assurance. Our work will involve inquiries and analytical procedures, not an audit. The goal is to ascertain if any material modifications are required for the financial statements to conform to [Accounting Framework].
We will communicate our findings in a review report. Please ensure all requested financial records are made available to us.
Sincerely,
[Your Accounting Firm Name]
Sample Review Engagement Letter for a Grant Compliance Check
Subject: Sample Review Engagement Letter for Grant Compliance
Dear [Grant Recipient Contact],
This letter confirms our engagement to perform a review of the financial statements of [Grant Recipient Organization Name] for the period [Start Date] to [End Date], specifically focusing on compliance with the terms of [Grant Name].
Our review will be performed in accordance with AICPA standards and will focus on inquiries and analytical procedures related to grant expenditures and reporting. While we will not be auditing the financial statements, our objective is to provide limited assurance that there are no material modifications needed to the financial statements for them to be in conformity with [Accounting Framework] and to identify any apparent non-compliance with grant terms.
Your organization is responsible for maintaining adequate records and providing all necessary documentation related to the grant.
Best regards,
[Your Accounting Firm Name]
Sample Review Engagement Letter for Internal Management Reporting
Dear [Management Team Representative],
This Sample Review Engagement Letter outlines our agreement to perform a review of the internal management financial reports for [Department/Company Name] for the quarter ended [End Date].
Our review will consist of inquiries of relevant personnel and analytical procedures applied to the financial data. The objective is to provide limited assurance that there are no apparent material misstatements or inconsistencies in the management reports. We will not be performing an audit, and therefore, will not express an opinion.
Your team is responsible for the accuracy and completeness of the data provided for our review.
Sincerely,
[Your Accounting Firm Name]
Sample Review Engagement Letter for a Lender Requirement
Dear [Bank Contact Person],
This engagement letter confirms that [Accounting Firm Name] will perform a review of the financial statements of [Borrower Company Name] for the year ended [End Date]. This review is being conducted at the request of [Borrower Company Name] to satisfy the reporting requirements of [Lender Name] as outlined in your loan agreement.
Our review will be conducted in accordance with AICPA standards and will provide limited assurance that the financial statements are free from material misstatement. We will perform inquiries and analytical procedures, but will not conduct an audit.
We will issue a review report addressed to [Borrower Company Name], which you may then review. Please let us know if there are any specific aspects of the review you would like us to focus on within the scope of a review engagement.
Regards,
[Your Accounting Firm Name]
Sample Review Engagement Letter for a Tax Preparation Support
Subject: Sample Review Engagement Letter for Tax Preparation Support
Dear [Taxpayer Name],
This letter outlines the services we will provide to assist with the preparation of your tax return for the tax year [Tax Year]. We will perform a review of your financial information to ensure accuracy and completeness before filing.
Our review will involve inquiries and analytical procedures applied to the financial data you provide. While this is not an audit, our objective is to provide limited assurance that the financial information used for tax preparation is presented fairly and that no material modifications are apparent. We will not express an opinion on the financial statements themselves.
You are responsible for providing us with all necessary financial records and information, and for the accuracy of your tax return once it is filed.
Sincerely,
[Your Accounting Firm Name]
In conclusion, understanding the components and purpose of a Sample Review Engagement Letter is essential for any business seeking professional financial review services. It lays the groundwork for a transparent and effective engagement, ensuring both parties are aligned on expectations, responsibilities, and the level of assurance provided. By carefully reviewing and signing this document, you set your business on a path for a clear and successful financial review process.