Sean Clem Has Done a Review Engagement and Prepared the Tax

question 59

Essay

Sean Clem has done a review engagement and prepared the tax return for your web design business for the last five years.The books and records have always been well organized,although year-end adjusting entries have been required.You do some of the accounting yourself and the rest of the accounting records are handled by your spouse,who is also an employee of the business.
This year,you would like to expand your business to provide ISP (internet service provider)services to your clients.This would involve purchasing additional computer equipment and software.You are also considering hiring an additional employee (you currently have three),and you are looking at obtaining a loan for $100 000 from the bank.The bank says that you should have your records audited,but you are not sure what this will mean.
Required:
What would Sean say to you about the differences between an audit and a review?

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Definitions:

Serious Side Effect

An unintended, negative reaction to a medication or therapy that can sometimes be severe or life-threatening.

Medication

Substances used in the diagnosis, treatment, or prevention of disease and as part of medical care to alleviate symptoms and improve health.

Risk

Risk involves exposure to the chance of injury or loss, a measure often assessed in decision-making processes.

Bounded Rationality

The concept that decision-making is limited by the information available, cognitive limitations of the mind, and the finite amount of time available to make a decision.