On 6 December 2012, the Danish Parliament adopted a new Danish assurance engagement standard designated “extended review”. The purpose of an extended review is to provide reporting class B enterprises with an alternative to an audit reducing the administrative burden while assuring the stakeholders of the accuracy of the disclosures in the financial statements. To assess whether an extended review is a real alternative to an audit, we have analysed how the two assurance engagements are different from one another. In addition, we have examined how Danish enterprises and banks approach the extended review and on this basis analysed the advantages and disadvantages of an extended review. In this connection we have outlined how to optimise the assurance engagement standard and discussed what a likely alternative to an extended review could be. Based on our analysis of the two assurance engagements, we can establish that the auditor’s extended review report resembles the auditor’s report and that the conclusion and the audit opinion are both phrased positively. The principal difference between an audit and an extended review is that the auditor expresses reasonable assurance in an audit whereas the auditor only expresses limited assurance and additional assurance in an extended review. The particular level of assurance provided in an extended review is also a key issue to the banks. Our examination among the banks shows that the majority of them will not accept an auditor’s extended review report as they, based on the work performed, do not regard the assurance provided in an extended review as sufficient. The fact that the banks do not regard the assurance provided in an extended review as sufficient means that an extended review is not a real alternative to an audit. Our examination among the enterprises also shows that only 4% of the enterprises asked have decided on an extended review of the financial statements for the coming financial year in spite of 40% of the respondents consider an extended review to be a good alternative to an audit. However, the enterprises’ rejection of an extended review is not only caused by the banks’ view on the matter, but also by the fact that the enterprises have little knowledge of extended reviews. The enterprises lack more information about extended reviews, including the level of assurance provided by an auditor’s extended review report. Consequently, the lack of clarity in the level of assurance provided by an auditor’s extended review report is a great disadvantage to extended reviews for which reason we recommend that the concept moderate assurance be implemented to extended reviews. However, an extended review also has various advantages, e.g. that the enterprises have the possibility of a review of their financial statements that is less in scope than an audit. Yet, we believe that a better alternative to an audit would be to raise the limits thus the enterprises, which at present can opt for either an audit or an extended review, instead are given an option to opt for a review according to ISRE 2400 (revised). This will reduce both the administrative burden and the audit costs of the enterprises while allowing them individually to opt for the performance of agreed-upon procedures according to ISRS 4400 if needed.
|Uddannelser||Cand.merc.aud Regnskab og Revision, (Kandidatuddannelse) Afsluttende afhandling|