Have you ever found yourself staring at a blank page, wondering where to begin with a review engagement letter? As a Certified Public Accountant, you know that these letters are a critical component of maintaining professional standards in the industry. But the task of crafting a review engagement letter can feel overwhelming, especially if you’re new to the process. That’s why the American Institute of Certified Public Accountants (AICPA) has created a sample review engagement letter that you can use as a starting point. The best part? You can use it as it is or edit it as needed to suit your specific needs. In this article, we’ll dive into why review engagement letters are so important and how the AICPA sample can make your life easier. So whether you’re a seasoned pro or a newcomer to the field, read on to find out how you can streamline your review engagement process.
The Best Structure for Your AICPA Sample Review Engagement Letter
Creating an effective engagement letter is critical for any accounting professional offering review services. A well-crafted engagement letter outlines the expectations and responsibilities of both the accountant and the client, managing their shared understanding of the agreed-upon scope of the review process.
To make sure that your AICPA sample review engagement letter is compliant with professional standards, and clearly establishes a framework for your professional relationship with your client, it is important to follow a structured approach. Here, we outline the best structure for your AICPA sample review engagement letter to help you get started.
1. Introduction
The introduction of your engagement letter should address the purpose of this document, the nature of your engagement, and an overview of the overall objectives of the review process you’ll be conducting. Your introduction should also include details about the examination standards that will be used throughout the review process, like those outlined in the AICPA’s Statement on Standards for Accounting and Review Services (SSARS).
2. Scope of Work
The body of your letter should accurately and concisely define the scope of your review process, including the procedures you’ll be conducting, the documents and information you’ll be reviewing, and the timeframe for delivering your final report. Make sure that both you and your client have the same expectations for the scope of the review to avoid any misunderstandings or frustrations down the road.
3. Responsibility of the Accountant and Management
This section should outline the specific responsibilities of both the accountant and the management in relation to the review process. For accountants, this typically includes performing the review in accordance with professional standards, communicating any significant findings to management, and maintaining confidentiality throughout the engagement. For management, their responsibilities may include providing access to information necessary for the review, ensuring the accuracy of financial statements, and timely communication with you regarding any changes that might impact your review.
4. Limitations of the Review
A good engagement letter should also highlight the limitations of a review engagement in comparison to an audit. Be clear about what you won’t be doing during the review process and describe any potential areas that may not have been covered during the review process. It is important to manage your client’s expectations by outlining any limitations at the outset of the review engagement.
5. Engagements Terms
The terms section of your engagement letter summarises the basis on which you’re being engaged and the monetary arrangements associated with the review. Depending on the arrangement in place, this section might also describe how your work will be used, any specific requirements of the client, or other expectations related to the review engagement service.
Conclusion
As you close your engagement letter, take a final opportunity to restate the key points of your engagement and express your enthusiasm for the project. This is also a good time to include any additional notes, disclaimers, or references to relevant guidance your client should be aware of.
Following the above structure will help you create a robust AICPA sample review engagement letter that meets industry standards and ensures you have a clear and effective framework with your clients from the beginning.
AICPA Sample Review Engagement Letter for Financial Statement
Sample 1: Recommendation for Financial Statement Review Engagement
Greetings!
This letter is to recommend the review engagement of the financial statements of XYZ Company for the period ended December 31, 2020. Our review will be conducted in accordance with standards issued by the American Institute of Certified Public Accountants.
We will perform analytical procedures and inquiries regarding the amounts, disclosures, and footnotes included in the financial statements. The purpose of our review is to obtain limited assurance that there are no material modifications needed for the financial statements to be in accordance with generally accepted accounting principles.
Please let us know your acceptance of our recommendation for this review engagement.
Thank you for considering our services.
Sample 2: Recommendation for Employee Benefit Plan Review Engagement
Dear Sir/Madam,
We are writing to recommend that a review engagement be performed on the financial statements of the employee benefit plan of ABC Corporation for the year ended December 31, 2020, in accordance with the standards issued by the American Institute of Certified Public Accountants.
Our review will include inquiries, analytical procedures, and tests of selected transactions and balances. The purpose of our review is to obtain limited assurance that the financial statements are in conformity with the generally accepted accounting principles applicable to employee benefit plans.
Please let us know your acceptance of our recommendation for this review engagement.
Thank you for your time and consideration.
Sample 3: Recommendation for Compliance Review Engagement
Dear [Client Name],
We recommend that you engage us to perform a compliance review engagement of ABC Company for the period ending December 31, 2020. This engagement is in accordance with the standards issued by the American Institute of Certified Public Accountants (AICPA).
Our review would include performing inquiries and analytical procedures to assess the compliance of ABC Company with rules, regulations, guidelines, and contracts, as appropriate. The objective of this engagement is to provide limited assurance that the company is compliant with the applicable regulations, laws, and contracts, as appropriate.
Thank you for considering our services for this review engagement.
Best regards,
Sample 4: Recommendation for Review of Projections and Forecasts
Dear [Client Name],
We recommend conducting a review engagement of the projections and forecasts prepared by ABC Company for the year ending December 31, 2021. This engagement is in accordance with the standards issued by the AICPA.
Our review would include assessing the reasonableness of significant assumptions, methods, and estimates used by ABC Company in preparing its projections and forecasts for the next year. The objective of this engagement is to express limited assurance that the projections and forecasts are free from material misstatement and are prepared in accordance with professional standards.
Thank you for considering our services.
Best regards,
Sample 5: Recommendation for Review of Company’s Tax Returns
Dear [Client Name],
We recommend that you engage our firm to perform a review engagement of the tax returns of ABC Company for the tax year ending December 31, 2020. This review engagement is in accordance with the standards issued by the AICPA.
Our review will include inquiries and analytical procedures designed to gain limited assurance that the tax returns are free from material misstatement. The purpose of this review engagement is to provide limited assurance that the tax returns are prepared in accordance with the applicable accounting standards.
Please let us know your acceptance of our recommendation for this review engagement.
Thank you for considering our services for this review engagement.
Sample 6: Recommendation for Physical Inventory Count Review
Dear [Client Name],
Please accept our recommendation that you engage our firm to perform a review engagement over the physical inventory count of ABC Corporation as of December 31, 2020. Our review engagement will be conducted in accordance with the standards issued by the AICPA.
Our review engagement would include inquiries, observation, and analytical procedures to assess the reasonableness of the physical inventory count in relation to the financial statements. The objective of this engagement is to provide limited assurance of the fair representation of the physical inventory count.
Please let us know your acceptance of our recommendation for this review engagement.
Thank you for your time and consideration.
Sample 7: Recommendation for Review Engagement of the Cash Management Process
Dear [Client Name],
We recommend that you engage our firm to perform a review engagement of the cash management process of ABC Company for the year ending December 31, 2020. This review engagement is in accordance with the standards issued by the AICPA.
Our review engagement would include inquiries and analytical procedures to assess the effectiveness of ABC Company’s internal controls over cash management and to provide limited assurance that the cash balances are materially correct in the financial statements.
Please let us know your acceptance of our recommendation for this review engagement.
Thank you for considering our services for this review engagement.
In-Depth Tips for AICPA Sample Review Engagement Letter
The AICPA sample review engagement letter provides a comprehensive guide for conducting a review engagement. It is important to understand the key factors and considerations when preparing an engagement letter. Below are some useful tips for ensuring your engagement letter is effective and meets the necessary standards.
1. Define the scope of services: Clearly outline the scope of the review engagement services you will be providing. This includes identifying the financial statements that will be reviewed, the time period covered, and any specific conditions that may impact the review process.
2. Set expectations for client responsibilities: It is important that your client understands their responsibilities throughout the review engagement. Outline the information and documentation you will need, as well as the deadlines for providing this information. You should also clarify that the client is responsible for the accuracy and completeness of the information provided.
3. Establish communication protocols: Keeping open communication with your clients is crucial to the success of the review engagement. Ensure that your engagement letter establishes how you will communicate with each other, how often, and through what channels.
4. Identify materiality thresholds: Establishing materiality thresholds allows you to determine the level of risk that you will tolerate during the review process. This information should be included in the engagement letter to ensure your client is aware of how you will approach materiality.
5. Discuss expectations for report delivery: An important aspect of the review engagement is the delivery of the final report. Outline the timeline for report delivery, and ensure that your client understands the report content and their responsibilities once the report has been submitted.
6. Inquire about potential conflicts of interest: It is essential to identify and avoid any potential conflicts of interest that may impact the review engagement. Discuss this with your client and ensure that you update the engagement letter accordingly.
By incorporating these tips into your AICPA sample review engagement letter, you can ensure that your engagement meets the necessary standards and is effective for both you and your client.
FAQs about AICPA Sample Review Engagement Letter
What is an Engagement Letter?
Engagement Letter is a written agreement designed to formalize the relationship between the accountant and the client. It defines and outlines the scope of the services to be provided by the accountant, the responsibilities of both parties and the terms and conditions under which the engagement will be conducted.
What is a Sample Review Engagement Letter?
A Sample Review Engagement Letter refers to a template document provided by the American Institute of Certified Public Accountants (AICPA) to assist practitioners in preparing an engagement letter for a Review engagement. It is designed to be used as a guide to help practitioners communicate to their clients the extent and limitations of the review work to be undertaken.
What is a Review Engagement?
A Review Engagement refers to an engagement in which the accountant reviews the financial statements of an entity to provide limited assurance that there are no material modifications that need to be made to the financial statements for them to be in accordance with the applicable financial reporting framework.
Why should an Engagement Letter be used for a Review Engagement?
The use of an Engagement Letter is important for a Review engagement as it outlines the scope of the work to be performed, confirms the understanding between the accountant and the client, and sets the expectations of both parties. It also clearly defines the responsibilities of each party, lays out the fee arrangement, and establishes the timeline and any other relevant terms and conditions of the engagement.
What are the basic components of a Review Engagement Letter?
The basic components of a Review Engagement Letter include; the purpose of the engagement, the identification of the financial statements, the criteria to be used, the scope of the engagement, responsibilities of the accountant and the client, restrictions and limitations of the engagement, and the expected timing and fee arrangement.
Is it important to obtain client acceptance of the Engagement Letter?
Yes, it is important to obtain client acceptance of the Engagement Letter. A signed acceptance of the engagement letter by the client serves as evidence of the client’s agreement and understanding of the terms of the engagement.
What should be done if there are any changes to the scope of the engagement?
If there are any changes to the scope of the engagement during the course of the Review, it is important to document these changes in writing and obtain the client’s agreement to the revised terms of the engagement. This should be done by issuing an updated Engagement Letter which reflects the revised scope of work.
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I hope this article about the AICPA sample review engagement letter was helpful in understanding what this important document entails. Remember, if you’re ever in need of a review engagement letter, it’s best to consult with a qualified professional or use a reliable sample as a guide. And don’t forget to drop by again later for more engaging content. Until next time!