LIMITED OR NEGATIVE ASSURANCE
The review engagement report expressly provides some assurance. It raises the question of what that assurance means and what reliance it justifies. It is difficult for a third party to know the extent to which it is reasonable to rely upon such assurance, because the meaning of such assurance is usually obscure. In order to know how much reliance one can reasonably place on the reviewer’s expression of negative assurance, one must find out what procedures the reviewer has performed and how likely or unlikely it is that those procedures will uncover departures from financial reporting standards (“FRS”). The review report says hardly anything at all about what the reviewer has done. Who can tell, just from the report, what "inquiries to personnel" the reviewer made and what "analytical procedures" the reviewer performed? For instance, who but a reviewer or a very sophisticated user will know that these inquiries and procedures generally need not include any significant scrutiny of the client's internal financial controls? In short, how can anyone who is not a reviewer have any idea of what reliance may reasonably be placed on a review report expressing negative assurance? The reviewer expressing negative assurance is like the lifeguard who reports not that there are no sharks in the swimming area, but merely that he has not seen any sharks, without telling us how hard he looked for them. Maybe the sharks are resting on the bottom. Who wants to get wet and find out?
This reasoning might seem to suggest there can be no reasonable reliance on a review report expressing limited assurance (and therefore there can be no reasonable reliance on any review report). Ironically, this conclusion would support the reviewer's defense that any reliance by the plaintiff was unjustified or unreasonable (negligent). But this conclusion also makes review reports completely useless. Worse: It makes them look like a trap set by the reviewer or client for the unwary lender or investor: The reviewer’s language in the review report, and name and identification as a professional, clearly invite some degree of reliance, even if that reliance is "limited" (a word that, like "negative," does not appear in the report).
Because the expression of limited assurance leaves the degree of reliability unclear, courts are likely to conclude that an unsophisticated user could reasonably place considerable reliance on the report.
This reasoning might seem to suggest there can be no reasonable reliance on a review report expressing limited assurance (and therefore there can be no reasonable reliance on any review report). Ironically, this conclusion would support the reviewer's defense that any reliance by the plaintiff was unjustified or unreasonable (negligent). But this conclusion also makes review reports completely useless. Worse: It makes them look like a trap set by the reviewer or client for the unwary lender or investor: The reviewer’s language in the review report, and name and identification as a professional, clearly invite some degree of reliance, even if that reliance is "limited" (a word that, like "negative," does not appear in the report).
Because the expression of limited assurance leaves the degree of reliability unclear, courts are likely to conclude that an unsophisticated user could reasonably place considerable reliance on the report.
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