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Review engagements – structure of audit firm methodology and its situational application in Germany

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  • Ruhnke, Klaus
  • Schmitz, Stefanie

Abstract

Reviews and audits enhance the degree of confidence of a subject matter. Since the scope of a review is substantially smaller than that of an audit, these assurance engagements are quite distinct. Although reviews are often conducted, no academic research has focused on review practice. To address this issue, we conduct semi-structured interviews and examinations of review approaches of firms that perform review engagements for clients in Germany. Since reviews are less regulated by external standards, we first analyze the structure of audit firm’s review approaches and its determinants. Based hereon, we focus on the situational application of the review approach in practice. In our analysis, we consider the concept of structure as well as contingency and institutional theory. We find that uncertainties about normative requirements, especially regarding the concept of limited assurance, encourage auditors to apply review procedures that are not obligatory, but well known from the audit of annual financial statements. We find evidence for various mechanisms to gain legitimacy. Altogether, we contribute to a better understanding of different forms of assurance engagements. Further, our results indicate that auditors benefit from vague external review standards, which in turn may lessen the risk of litigation and reputational damage.

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  • Ruhnke, Klaus & Schmitz, Stefanie, 2019. "Review engagements – structure of audit firm methodology and its situational application in Germany," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 37(C).
    • Handle: RePEc:eee:jiaata:v:37:y:2019:i:c:s1061951818301484
    DOI: 10.1016/j.intaccaudtax.2019.100289
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