What does a CPA do when performing a Review of financial statements?

When a CPA performs a Review of financial statements, the primary goal is to provide limited assurance that the financial statements are free from material misstatements. This process is less extensive and conclusive than an audit. The CPA reviews the financial information, applies analytical procedures, and obtains written representations from management.

In this context, preparing a report indicating there are no material differences from GAAP rules signifies that the financial statements are in alignment with Generally Accepted Accounting Principles, thus providing stakeholders with a level of confidence regarding the accuracy and fairness of the financial reporting. This limited assurance is well-suited for situations where a comprehensive audit is unnecessary, such as for internal purposes or when stakeholders require a lower level of assurance than what an audit provides.

The other options reflect different types of services or reports that do not accurately represent the nature of a Review. For example, issuing a formal audit report or conducting a comprehensive audit of financial practices suggests a far greater investigation and assurance level than what a Review entails. Similarly, checking compliance with tax regulations is typically outside the scope of a Review of financial statements.