Inside the CPA Process: A Step-by-Step Review Engagement Overview

Are you curious about what actually goes on during the CPA process? Despite the spreadsheets, financial records, and various forms, a CPA review engagement isn’t as mysterious as it may seem. It provides a moderate level of assurance about your financial statements—more than a simple compilation but less exhaustive than an audit. Below, we’ll take you through each phase of the CPA process so you know exactly what to expect.

Step 1: Engagement Letter and Planning

1. Clear Scope

The CPA process begins with an engagement letter. This document defines everything from our responsibilities to the project’s timeline. It clarifies the objectives of the review engagement, what it does and does not include, and highlights your obligations as well.

2. Materiality and Risk Discussion

Although we don’t perform a full risk assessment as in an audit, we do identify areas in your financial statements that are more likely to contain errors—like revenue recognition or significant expenses. This preliminary step helps keep the CPA process efficient.

Step 2: Document Requests

1. Provided-by-Client (PBC) List

Next, we’ll supply a checklist (often called a PBC list) outlining the essential documents—such as trial balances, bank statements, and relevant contracts.

2. Gathering the Data

Well-organized documents are crucial to a smooth CPA process. When records are easy to navigate, it’s simpler for us to detect unusual balances or missing information early on.

Step 3: Analytical Procedures

1. Ratio Analysis

We compare your current-year figures to those from previous years or to industry benchmarks. If your gross margin fluctuates dramatically, our CPA process includes investigating why.

2. Trend Analysis

We also look at monthly or seasonal trends in sales and expenses, looking for consistency and potential red flags. When something stands out, we dig deeper to find the cause.

Step 4: Inquiries of Management

1. Focused Questions

During this stage of the CPA process, we’ll consult with you or your accounting team regarding any anomalies we spot. For instance, if accounts receivable has surged by 40%, we want to know if this is related to a new major client.

2. Documentation Requests

If certain entries remain unclear, we may ask for more documentation—like an invoice, sales contract, or other source materials—to confirm the accuracy of the numbers.

3. Clarifying the Big Picture

These discussions aren’t about interrogation. They’re collaborative efforts aimed at confirming your financial statements reflect the true scope of your business operations.

Step 5: Evaluating the Findings

1. Cross-Checking the Data

We examine whether your records and explanations align. If discrepancies remain, we’ll investigate further.

2. Assessing Consistency

A key part of the CPA process is ensuring the consistency of accounting methods (like revenue recognition or depreciation) across reporting periods.

3. Limited Assurance Conclusion

If we don’t uncover evidence of significant misstatements, we conclude that we’re unaware of any material issues with the financial statements.

Step 6: The Review Report

1. Standard Language

In the final phase of the CPA process, we provide a review report confirming that our work was conducted under relevant professional standards and that no material misstatements were detected.

2. Negative Assurance

This type of assurance means “nothing came to our attention” that would necessitate a correction to your financial statements.

3. Comparisons to a Full Audit

While a review doesn’t delve as deeply as an audit, many lenders and investors consider this level of assurance sufficient for certain financial decisions.

Typical Timeline of the CPA Process

1. Initial Coordination and Engagement (a few days to a week)
   
   

• Sign engagement letters, set the timeline, and gather initial data.
  
  

2. Document Collection (1–2 weeks, depending on your organization)
   
   

• Compile bank statements, ledgers, and key contracts.
  
  

3. Analytical Review and Inquiries (1–2 weeks)
   
   

• Conduct ratio and trend analyses, resolve anomalies, and ask clarifying questions.
  
  

4. Wrap-Up and Reporting (a few days to a week)
   
   

• Finalize the CPA process with conclusions, draft the review report, and deliver it.
  
  

Note: Larger businesses or complex financial structures may require additional time.

Conclusion

The CPA process involved in a review engagement strikes a balance between comprehensive oversight and cost-effectiveness. By relying on analytical methods and in-depth inquiries, we offer limited assurance that your financials are free of major misstatements. For businesses needing more insight than a compilation can provide—but not the intensity of an audit—a CPA review engagement could be the ideal solution.

Hudson & Empire is here to guide you through every step of the CPA process. Get in touch today to schedule your review engagement and experience the difference that professional, personalized CPA services can make in elevating your financial credibility.

Frequently Asked Questions (FAQs)

Do you check for fraud in a review?

While the CPA process for a review engagement doesn’t include a dedicated search for fraud, we will certainly inform you if we notice something suspicious.

If you spot a major mistake, can you fix it?

We can recommend adjustments for you to adopt, but the final decision and responsibility for any corrections rest with your management team.

Will you visit our office?

Most of our review engagements can be done remotely, since the CPA process mostly involves analysis and inquiries. We may opt for an in-person visit if it’s more efficient or if we need to review specific physical records.