An Independent Review is a limited assurance engagement performed by a qualified independent practitioner (usually a registered accountant or auditor), where they review a company’s annual financial statements (AFS) without performing a full audit.
It’s less intensive and costly than an audit but still provides a level of credibility and assurance to stakeholders — especially banks, investors, and regulators.
🔬 What Does an Independent Review Involve?
Unlike an audit, an Independent Review does not test internal controls or verify every transaction. Instead, it involves analytical procedures and limited inquiries to determine whether the financial statements are free from material misstatements.
🎯 Objective:
To provide limited assurance that the financial statements are not materially misstated.
🧪 Key Procedures and Tests in an Independent Review
Here’s what’s typically involved:
1. Understanding the Business and Industry
- Obtain knowledge of the client’s business model, operations, and industry risks.
- Identify areas where misstatements are likely to occur.
- Understand the accounting systems used.
2. Inquiry-Based Procedures
- Interview management and responsible staff about:
- Revenue recognition
- Unusual transactions
- Estimates and provisions
- Related-party transactions
- Subsequent events
- Enquire about accounting policies and any changes during the period.
3. Analytical Procedures
- Compare current year vs prior year figures and look for anomalies.
- Use ratio analysis to identify irregularities (e.g. gross margin %, debt ratios).
- Perform trend analysis and variance analysis:
- Revenue vs COGS
- Operating expenses over time
- Debtors and creditors fluctuations
- Inventory turnover
📌 Significant deviations are flagged and followed up with further enquiries.
4. Review of Supporting Documentation
- Review of bank reconciliations, trial balance, and general ledger summaries.
- Assess whether account balances appear reasonable and consistent.
- May request a sample of invoices, contracts, or bank statements to verify material transactions.
- Review board minutes, if applicable.
5. Subsequent Events Review
- Enquire about any events after year-end that may affect the AFS:
- Legal disputes
- New debt
- Asset impairment
6. Related-Party Transactions Review
- Identify any transactions with directors, shareholders, or connected entities.
- Evaluate disclosure adequacy.
7. Going Concern Assessment
- Discuss cash flow, profitability, debt obligations.
- Review forecasts or budgets, if available.
- Assess management’s plans to address any going concern risks.
📑 What the Practitioner Does Not Do
Unlike an audit, an Independent Review does not involve:
- Substantive testing (no detailed testing of individual transactions or balances).
- Confirmation from third parties (e.g. debtors, creditors, banks).
- Inspection of internal controls or internal audit reports.
- Physical asset verification (e.g. stock counts, fixed asset existence).
- Expressing an audit opinion (only a limited assurance conclusion).
🧾 Deliverable: The Independent Review Report
At the end of the review, the practitioner issues an Independent Reviewer’s Report, typically concluding:
“Nothing has come to our attention that causes us to believe that the annual financial statements do not fairly present, in all material respects, the financial position of the company…”
This report is included in the financial statements submitted to CIPC and/or SARS.
🏁 When Should a Business Choose or Expect an Independent Review?
You’ll need an Independent Review if:
- Your PI Score is between 100 and 350, and:
- You are not owner-managed, or
- You opt not to be audited (and you’re allowed to do so).
- You are applying for funding, and the lender requires assurance.
- Stakeholders (e.g. investors, partners) want some level of external review without the cost of a full audit.
📞 Need Help with an Independent Review?
Understanding whether you qualify for an Independent Review, and ensuring it’s done properly, requires expert input — especially to avoid conflicts of interest and ensure compliance.
Reach out to Prosperity Accounting and Bookkeeping Solutions today for professional guidance:
📧 Email: bonita@prosperityacc.com
📞 Call/WhatsApp: 083 487 6172
We’ll help you navigate the requirements, connect you with the right review practitioner if needed, and ensure your financials are fully compliant and professionally presented.
