A). A review engagement is carried out in accordance with the International Standard for Review Engagements (ISRE) 2400. During review engagement, the auditor should apply the same materiality considerations as would be applied if an audit opinion on the financial statements were being given. Although there is a greater risk that misstatements will not be detected in a review than in an audit, the judgment as to what is material is made by reference to the information on which the auditor is reporting and the needs of those relying on that information, not to the level of assurance provided. 

Required: 

i). Differentiate between 'audit engagement' and 'review engagement' in respect of their objective and comparative level of assurance.  

ii). Justify the need for a review of financial statements.

iii). Explain the reason why 'there is a greater risk that misstatements will not be detected in a review than in an audit's.  

B). Assume that Maria, CPA is using 10% of the net income before taxes, current assets or current liabilities as her major guidelines for evaluating materiality. What qualitative factors should she also consider in deciding whether the misstatements may be material.  

C). Discuss the three categories of factors that affect acceptable risk and list the factors that the auditor can use to indicate the degree to which category exists.

Answer rating: 100% (QA)

Answer i Audit Engagement Review Engagement It is meant to provide reasonable assurance that the financial statements are free from material misstatem... View the full answer