Limited Assurance Engagements for Practitioners
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An introduction to the IFAC SMP Committee's Guide to Review Engagements
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Limited Assurance Engagements for Practitioners
- 1. Limited Assurance Engagements for Practitioners IFAC SMP Committee An Introduction to the Guide to Review Engagements February 2014 Page 1 | Confidential and Proprietary Information
- 2. An introduction to the Guide to Review Engagements Contents • Introduction – ISRE 2400 (Revised) – Benefits & Uses • Review Engagement—Four Elements: – Accepting – Planning – Performing – Reporting • Checklists & Forms • IFAC Resources Page 2 | Confidential and Proprietary Information
- 3. Guide to Review Engagements • International Standard on Review Engagements (ISRE) 2400 (Revised) • Guide to Review Engagements available at www.ifac.org/SMP Page 3 | Confidential and Proprietary Information
- 4. An introduction to the Guide to Review Engagements Uses of Review Engagements Uses Commentary Increased Credibility Gives independent credibility to the financial statements—to attract new investors, obtain finance. Enhanced Confidence Provides accountability & confidence to shareholders, management, partners, government agencies and regulators, and other stakeholders. Enables the business to plan for the future—prepares Plan for Success growing business for transition to audit or preparing to sell. Page 4 | Confidential and Proprietary Information
- 5. An introduction to the Guide to Review Engagements SME Benefits of Review Engagements SME Benefits Alternative to Audit Commentary Audit exemptions for small- and medium-sized entities (SMEs) are becoming more prevalent. The nature of the procedures in a review may be less time consuming than those in an audit. Lower Cost A review engagement is normally a lower cost for an entity than an audit. Limited Assurance Limited assurance obtained on the historical financial statements as opposed to no assurance with a compilation. Page 5 | Confidential and Proprietary Information
- 6. An introduction to the Guide to Review Engagements SMP Benefits of Review Engagements SMP Benefits Commentary Bespoke Advice Add value to the client and provide bespoke advice. Build strong relationships. Opportunities— Additional Service Opportunity to offer an additional service. Flexibility Consists primarily of inquiry and analysis, allowing practitioners to tailor procedures to individual clients’ circumstances based on their professional judgment and experience. Page 6 | Confidential and Proprietary Information
- 7. An introduction to the Guide to Review Engagements Benefits of the Guide Guide Benefits Commentary Extracts from the Direct extracts of all the requirements from ISRE 2400 Standard (Revised). Tailored Examples Illustrated examples. Consider Points Including efficiency suggestions and useful tips. Useful Appendix Checklists, specimen letters, and forms for adaptation. Staff Training Can serve as a day-to-day reference tool for staff; can also be used for training. Ensures SMP staff develop a consistent approach. Page 7 | Confidential and Proprietary Information
- 8. An introduction to the Guide to Review Engagements Comparison of the Three Engagements Page 8 | Confidential and Proprietary Information
- 9. An introduction to the Guide to Review Engagements The Four Elements Accepting Planning Performing Reporting Page 9 | Confidential and Proprietary Information
- 10. Accepting Page 10 | Confidential and Proprietary Information
- 11. Accepting ISRE 2400 (Revised) Prerequisites • Firm to comply with: – ISQC 1 [2400.4] • Quality control policies and procedures – IESBA Code of Ethics for Professional Accountants, Parts A and B [2400.21] • Independence and ethics • Engagement partner requires competence in: – Assurance skills and techniques [2400.24] – Financial reporting [2400.24] Page 11 | Confidential and Proprietary Information
- 12. Accepting Engagement Acceptance Two preliminary questions to ask about engagement: Does a Rational Purpose Exist? Is the Engagement Appropriate in the Circumstances? Management wants a review engagement to reduce costs BUT an audit is required by law = Not a rational purpose. A bank requests limited assurance with regard to a loan = A rational purpose. Suspicions exist that engagement is being used to conceal or minimize facts/information that would have been more fully disclosed or resulted in a modified opinion if an audit had been performed. = Review engagement not appropriate. Page 12 | Confidential and Proprietary Information
- 13. Accepting Agree Terms of Engagement Page 13 | Confidential and Proprietary Information
- 14. Planning Page 14 | Confidential and Proprietary Information
- 15. Planning Determine Materiality Determine materiality for the F/S as a whole. Base the decision on the following using professional judgment: Users Who are the intended user groups for the F/S? User Interests What are the common financial information needs of the intended users? Misstatement What level of misstatement in the F/S would be material to the intended users? Page 15 | Confidential and Proprietary Information
- 16. Planning Application of Materiality Determine what F/S areas are material. [2400.47(a)] Identify areas in the F/S where material misstatements are likely to arise. [2400.45] Application of Materiality in a Review Communicate to the engagement team members and TCWG. [2400.43] Provide context for evaluating results and assessing the need for additional procedures. Evaluate the nature/impact of identified misstatements. Materiality may need to be revised e.g., as a result of a change in the entity’s circumstances or new information. Page 16 | Confidential and Proprietary Information
- 17. Planning Scope of Review Engagement • Inquiry and analytical procedures directed to – All F/S areas that exceed materiality – Areas where material misstatements are likely to arise – Specific areas [2400.48] • Plus Additional Procedures where the practitioner becomes aware that the F/S may be materially misstated Page 17 | Confidential and Proprietary Information
- 18. Planning Assurance Skills • In determining procedures to be performed, high emphasis is placed on the use of professional judgment and … [2400.22-23] Page 18 | Confidential and Proprietary Information
- 19. Planning The Foundation • Understanding the Entity Purpose: Enable the practitioner to identify where material misstatements are likely to arise. * including: operations, ownership/governance, investments (made and proposed), operating structure, financing structure, and entity objectives and strategies. Page 19 | Confidential and Proprietary Information
- 20. Planning Required Areas to Address • Required Areas to Address: [2400.48] – Significant accounting estimates – Related parties and transactions – Significant, unusual, or complex transactions, events, or matters – Fraud or illegal acts and noncompliance with laws and regulations – Events occurring between the date of the F/S and the date of the practitioner’s report that require adjustment/disclosure in the F/S – Going-concern uncertainties – Material commitments, contractual obligations, or contingencies – Material nonmonetary transactions Page 20 | Confidential and Proprietary Information
- 21. Planning Design Analytical Procedures Base analytical procedures on the understanding obtained of the entity. Use to identify inconsistencies or variances from expected trends, values, or norms in the F/S. Use to identify areas where material misstatements are likely to arise in the F/S. Process Use to corroborate other evidence already obtained. Use to evaluate inconsistencies identified through other inquiries and procedures. Page 21 | Confidential and Proprietary Information
- 22. Planning Design Inquiries Base inquiries on the understanding obtained of the entity. Identify who is the most qualified person in the entity for obtaining the needed information. Process Arrange to meet with the person(s) identified to ask the necessary questions. Evaluate responses provided and be prepared to ask follow-up questions. Page 22 | Confidential and Proprietary Information
- 23. Performing Page 23 | Confidential and Proprietary Information
- 24. Performing Analytical Procedures, Inquiry & Work Performed • The nature and extent of procedures are based on professional judgment, not on a standard checklist. • Inquiries and analytical procedures are required to address all F/S items that are material and where material misstatements are likely to arise. • Review procedures could potentially include substantive tests of details, external confirmations, and review of supporting documentation if these are quicker or more efficient. • However, the design and performance of additional procedures may also be required. (ISRE 2400.57) Page 24 | Confidential and Proprietary Information
- 25. Performing Perform the Work • Perform Planned Procedures The practitioner is entitled to accept information obtained (often oral) as long as: 1. Responses are consistent with the understanding obtained of the entity. 2. Practitioner exercises sufficient professional skepticism to give a balanced impression to this information. 3. Practitioner does not become aware of a matter(s) that causes belief that the F/S may be materially misstated. If a matter(s) is identified, additional procedures will be required in accordance with 2400.57. Page 25 | Confidential and Proprietary Information
- 26. Performing When Additional Procedures are required IF, in performing the inquiries and analysis, the practitioner becomes aware … … of a matter that would cause the practitioner to believe that the F/S may be materially misstated … … additional procedures are required until such time that the practitioner can confirm whether the F/S are, indeed, materially misstated or whether they are not. Page 26 | Confidential and Proprietary Information
- 27. Performing Need for Additional Procedures Page 27 | Confidential and Proprietary Information
- 28. Performing Obtain Written Representations • Obtain a written representation letter from management: – State that management has fulfilled its responsibilities described in the agreed terms of the engagement. – Confirm important representations made during the engagement. – Assert that the information provided was complete. Page 28 | Confidential and Proprietary Information
- 29. Performing Evaluate Evidence Obtained • Has sufficient appropriate evidence been obtained? • If it is not possible to obtain sufficient appropriate evidence to form a conclusion, the practitioner is required to discuss with management and TCWG: – The nature of, and reasons for, the limitations; and – The effects of such limitations on the scope of the review and the conclusion. Page 29 | Confidential and Proprietary Information
- 30. Performing Evaluate Evidence Obtained • File documentation provides evidence that: – The engagement preconditions were met; – An understanding of the entity was obtained; – Review procedures were performed and the results were obtained; – Significant matters arising and conclusion reached during the engagement have been appropriately addressed; and – The limited assurance conclusion on the financial statements as a whole was appropriate based on the evidence obtained. Page 30 | Confidential and Proprietary Information
- 31. Reporting Page 31 | Confidential and Proprietary Information
- 32. Reporting Evaluate Identified Misstatements Page 32 | Confidential and Proprietary Information
- 33. Reporting Communicate Engagement Findings Use and application of significant accounting policies. Reasonableness of management estimates. Material uncertainties that may cast significant doubt on the entity’s ability to continue as a going concern. Matters to Discuss with Management and TCWG Significant difficulties encountered on the engagement. Any disagreements with management and how they were resolved. Whether or not identified misstatements were corrected. The wording of the practitioner’s conclusion on the F/S. Other relevant matters. Page 33 | Confidential and Proprietary Information
- 34. Reporting Form a Conclusion on the F/S • Unmodified – Based on our review, nothing has come to our attention that causes us to believe … • Modified Page 34 | Confidential and Proprietary Information
- 35. Reporting Wording of Modified Reports • Qualified – …. except for the possible effects of the matter(s) described in the Basis for Qualified Conclusion paragraph, nothing has come to our attention… • Adverse – Based on our review, due to the significance of the matter(s) described in the Basis for Adverse Conclusion paragraph, the financial statements do not present fairly, in all material respects (or do not give a true and fair view), … • Disclaimer – Due to the significance of the matters described in the Basis for Disclaimer of Conclusion paragraph, we were unable to obtain sufficient appropriate evidence to form a conclusion on the accompanying financial statements. Accordingly, we do not express a conclusion on these financial statements. Page 35 | Confidential and Proprietary Information
- 36. Checklists & Forms • Letters, Checklists & Forms in the Guide – Client Acceptance/Continuance Checklist (Appendix B) – Sample Engagement Letter (Appendix C) – Checklist for Understanding the Entity (Appendix D) – Examples of Analytical Procedures (Appendix E) – Going-Concern Events and Conditions (Appendix F) – Sample File Completion Checklist (Appendix G) – Example of Written Representations from Management (Appendix H) Page 36 | Confidential and Proprietary Information
- 37. IFAC Resources—Review Engagements • IFAC SMP Committee: www.ifac.org/SMP – Guide to Review Engagements – Article—Review Engagements for SMEs: Limited Assurance, Numerous Benefits – Article—The Standard for Limited Assurance Review Engagements • IAASB: www.iaasb.org – ISRE 2400 (Revised), Engagements to Review Historical Financial Statements – At a Glance: ISRE 2400 (Revised) • IFAC Global Knowledge Gateway: See Audit & Assurance (coming in April 2014) Page 37 | Confidential and Proprietary Information
- 38. IFAC Resources—General • IFAC SMP Committee: www.ifac.org/SMP – Follow us on Twitter: IFAC_SMP – Subscribe: IFAC SMP eNews – Join us on LinkedIn: IFAC SMP Community – IFAC SMP Quick Poll: Mid-Year 2013 – Resources and Tools – Guide to Quality Control for Small- and Medium-Sized Practices (Third Edition) (incl. companion manual and slides) • IFAC Translations & Permissions: www.ifac.org/about-ifac/translations-permissions Page 38 | Confidential and Proprietary Information
- 39. Summary • Thank you • Any questions? Page 39 | Confidential and Proprietary Information
- 40. www.ifac.org/SMP
Notes de l'éditeur
- ISRE 2400 (Revised) was issued in September 2012 and came into effect for periods ending on or after December 31, 2013. The standard addresses the practitioner’s responsibilities when engaged to perform a review of historical financial statements (when the practitioner is not the auditor of the entity) and the form and content of the practitioner’s report on the financial statements. ISRE 2400 (Revised) does not address: Reviews performed by the independent auditor of either the entity’s financial statements or reviews of interim financial information. The latter are dealt with by ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. Limited assurance engagements other than reviews of historical financial information that are performed under ISAE 3000 (Revised), Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. The Guide provides non-authoritative guidance on applying ISRE 2400 (Revised). It is not to be used as a substitute for reading the standard, but rather as a supplement to support consistent implementation of the standard. The Guide does not address all aspects of the standard, and should not be used for the purposes of determining or demonstrating compliance with ISRE 2400 (Revised).
- The use of a review engagement will, of course, depend on the jurisdiction in which it is undertaken.
- A review engagement may be better suited to the needs of some SMEs more than others. The nature of the procedures in a review may be less time consuming than those in an audit. A review engagement also normally costs less than an audit.
- SMP BenefitsThrough obtaining a detailed understanding of the business and its environment and usingindustry knowledge gained from other clients, the practitioner should be able to add value to the client and provide bespoke advice. Undertaking the review engagement onsite will enable the practitioner to effectively communicate with the client, build strong relationships, and improve staff efficiency levels.Additional Service—The practitioner should ensure the client is aware of how and when a review engagement can be used and the value of this being undertaken by a qualified, objective, and independent practitioner.A review engagement using ISRE 2400 (Revised) consists primarily of inquiry and analysis, allowing practitioners to rely more on their professional judgment and experience rather than detailed, substantive testing.
- This Guide is directed primarily at those with knowledge of auditing but little or no experience with performing review engagements.
- In a review engagement, the practitioner’s responsibilities (and the resulting report) differ significantly from those of an audit or compilation engagement and from the level of confidence that users could thus reasonably be expected to derive from the respective practitioner’s report. Since a review engagement consists primarily of inquiry and analytical procedures, there is a greater risk that material misstatements will not be detected as compared to an audit. In a review of financial statements, the practitioner expresses a conclusion that is designed to enhance the degree of confidence of intended users regarding the preparation of an entity’s financial statements in accordance with an applicable financial reporting framework. The practitioner’s conclusion is based on the practitioner obtaining limited assurance. The practitioner’s report includes a description of the nature of a review engagement as context for the readers of the report to understand the conclusion. A compilation engagement is less costly than either a review or an audit, but it does not provide any assurance for the reader. For an extra cost that is less than an audit, the review engagement can provide limited assurance to readers that could be very useful when it comes to selling the business, seeking new investors, or making a proposal for a bank loan.
- The diagram outlines the four major elements of a review engagement.
- This summarizes the steps involved in the accepting phase. Further explanation is contained on the following slides.
- Under ISQC 1, the firm has an obligation to establish and maintain a system of quality control to provide it with reasonable assurance that: The firm and its personnel comply with professional standards and applicable legal and regulatory requirements; and Reports issued by the firm or engagement partners are appropriate in the circumstances.If the firm is already subject to ISQC 1 in relation to other assurance engagements, the requirement to comply with this standard has already been met. If not, the firm is required to design and implement policies and procedures that will achieve the objectives of a quality control system and then to regularly monitor compliance with those policies. EthicsThe firm needs to comply with Parts A and B of the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with anynational requirements that may bemore restrictive. A review engagement may only be accepted by (or assigned by the firm to) an engagement partner who has the professional competencies to perform the work required. This competency may have already been obtained through performing other assurance engagements, receiving coaching from experienced staff, or working alongside others who are already competent. Otherwise, competency will need to be obtained by attending suitable training courses, reading relevant material (including ISRE 2400 [Revised] in addition to the Guide), and passing any required professional examinations.Assurance SkillsAs noted in ISRE 2400 (Revised), assurance skills include:How to apply professional skepticism and professional judgment.Understanding information systems and limitations of internal control. Linking materiality and engagement risks to the nature, timing, and extent of procedures for the review. Applying procedures, as appropriate, to the review engagement. Establishing systematic documentation practices. Applying skills and practices relevant for writing reports for assurance engagements.Financial ReportingThe practitioner understands the requirements of the AFRF in sufficient detail to identify areas in the F/S where material misstatements are likely to arise, and to design procedures to address those areas.
- There should always be a rational (logical) purpose for a client to request a review engagement. A review engagement is typically requested to enhance the degree of confidence that intended users will place on the financial statements. Rational purposes would include situations where:A bank requests a review engagement report with regard to a loan made to the entity; A government agency requires a review engagement report in connection with their funding support; orThe entity has external stakeholders (investors, members, or supporters) to whom they are accountable.
- The practitioner’s conclusion in a review engagement relates to the entity’s financial statements. Although, in some jurisdictions, the practitioner may assist in their preparation, it remains the responsibility of management and TCWG, as appropriate, to prepare (and take full ownership for) the entity’s financial statements. These engagement preconditions for any assurance engagement, whether audit or review, are designed to ensure that before any work commences, management does, indeed, understand the full extent of its responsibility for the preparation of the financial statements and for providing the practitioner with access to relevant information and personnel. These requirements, as outlined in the exhibit, should be discussed with management and TCWG to ensure they understand their responsibilities. Many small clients make the mistake of assuming that, because of their expertise, the practitioner is responsible for the preparation and fair presentation of the financial statements. Practitioners should take the time to meet with the client and review the client’s responsibilities as outlined above. Do not assume that when management or TCWG sign the engagement letter, they necessarily understand the full extent of their responsibilities.
- This summarizes the steps involved in the planning phase. Further explanation is contained on the following slides.
- Practitioners are required to determine materiality for the financial statements as a whole. Misstatements, including omissions, are generally considered to be material if they (including individually immaterial items that could amount to a material misstatement when taken together) could reasonably be expected to influence the economic decisions of users when taken on the basis of the financial statements.Since materiality is determined on the basis of both the financial statements and the practitioner’s assumptions as to users of those financial statements, in practice, the determination of materiality may be influenced as the practitioner develops an understanding of the entity and its environment and performs review procedures. Thus, in practice, determination of materiality is unlikely to be a discrete phase of a review engagement.Determining materiality for the financial statements as a whole involves considering the steps in the slide.Users—such as shareholders, members, and lending institutionsNeeds of users—such as revenues, profitability, and assetsThe practitioner should consider both quantitative and qualitative factors.
- Once established, the materiality amount will serve as a benchmark for planning the procedures to be performed and evaluating the information obtained. The principal uses for materiality are outlined in the slide.Those Charged With Governance (TCWG)
- Professional judgment is essential to the proper conduct of a review engagement. This is because the interpretation of relevant ethical requirements and the requirements of this ISRE, and the need for informed decisions throughout the performance of a review engagement, require the application of relevant knowledge and experience to the facts and circumstances of the engagement. Professional skepticism is an attitude of mind that enhances a practitioner’s ability to identify and respond to conditions that may indicate possible misstatement. The main elements of professional skepticism are summarized above.Professional skepticism is necessary for the critical assessment of evidence in a review. This includes questioning inconsistencies and investigating contradictory evidence, and questioning the reliability of responses to inquiries and other information obtained from management and those charged with governance. It also includes consideration of the sufficiency and appropriateness of evidence obtained in the light of the engagement circumstances.
- Financial statement areas where misstatements are “likely to arise” would include areas prone to misstatement due to matters such as estimation uncertainty, complexity, or need for judgment (hard-to-value inventories, etc.). “Likely to arise” would not include areas that are immaterial or relatively easy to review, such as the cost of a building held for some years.
- The practitioner’s inquiries of management and others within the entity, as appropriate, shall include the following: How management makes significant accounting estimatesIdentification of related parties and transactions, including purposeAny significant, unusual, or complex transactions, events, or mattersExistence of any actual, suspected, or alleged fraud or illegal acts and noncompliance with laws and regulationsEvents occurring between the date of the financial statements and the date of the practitioner’s report that require adjustment or disclosure in the F/SAny events or conditions that appear to cast doubt on the entity’s ability to continue as a going concern plus management’s assessmentMaterial commitments, contractual obligations, or contingenciesMaterial nonmonetary transactions or transactions for no consideration in the financial reporting period under consideration
- The last step in planning is to determine the nature, timing, and extent of the procedures needed to obtain sufficient appropriate evidence for the review engagement. The planned procedures will address the requirements of ISRE 2400 (Revised), including:All material items in the financial statements, including disclosures;Financial statement areas where material misstatements are likely to arise;Specified areas (such as, related party transactions, going concern, fraud, and noncompliance); andRequirements (including additional reporting requirements) established under applicable laws or regulations.Analytical procedures involve evaluation of financial information through analysis of relationships among both financial and nonfinancial data. Analytical procedures are used to:Identify areas where material misstatements may exist in the financial statements in support of the practitioner’s initial inquiries;Identify inconsistencies or variances from expected trends, values, or norms in the financial statements, such as the level of congruence of the financial statements with key data, including key performance indicators that could cause the practitioner to believe the financial statements may be materially misstated; andProvide corroborative evidence in relation to other inquiries or analytical procedures already performed.Before an analytical procedure is performed, it is important to consider whether the data to be used is adequate for the intended purpose.
- This summarizes the steps involved in the performing phase. Further explanation is contained on the following slides.
- The nature and extent of the procedures performed will be based on the practitioner’s professional judgment and not on a standard checklist.The Guide contains some typical analytical procedures for selected account balances (Appendix E).Inquiries are required to:Address all F/S items that are material; andFocus on areas where material misstatements are likely to arise, including disclosures. The review procedures chosen may not be limited to just inquiry and analysis. They could potentially include:Substantive tests of details;External confirmations (banks, lawyers, etc.); andReview of documentation supporting e.g., inventory counts, shipping dates of orders around the year end, and dates in the accounting records.The further procedures may not feature in a review engagement at all, but a practitioner may voluntarily perform them for efficiency reasons or they could be required to design and perform additional procedures in accordance with ISRE 2400.57. See next slides 25 and 26.
- ISRE 2400.57 – If the practitioner becomes aware of a matter(s) that causes the practitioner to believe the financial statements may be materially misstated, the practitioner shall design and perform additional procedures sufficient to enable the practitioner to: (Ref: Para. A95–A99) Conclude that the matter(s) is not likely to cause the financial statements as a whole to be materially misstated; or Determine that the matter(s) causes the financial statements as a whole to be materially misstated.For example, when inquiring about inventory cut-off, it becomes evident that certain shipments of goods in the current period may actually have been recorded in the accounting records for the subsequent period. If the recording of these shipments in the wrong period causes the practitioner to believe that the financial statements may be materially misstated, additional procedures will be required until it is possible for the practitioner to either confirm or dispel the fact that the financial statements are materially misstated. [Alsorefer to detailed example in 2400.A99.]
- Exercising professional skepticism means avoiding the temptation to ignore or rationalize contradictory or inconsistent information on the basis that the amounts involved are not material. Fraud, in particular, is generally discovered by following up on small and unusual patterns, exceptions, and oddities. If you have any reason to doubt the information being provided, ask more questions and review supporting information rather than accepting management’s explanations at face value.
- During the engagement, management will make a number of oral representations in response to the various inquiries and analysis. At the end of the engagement, include these oral representations in a written representation letter from management and TCWG. The representation letter will:State that management has fulfilled its responsibilities described in the agreed terms of engagement. Confirm important representations made during the engagement. Assert that the information provided was complete.
- The practitioner shall evaluate whether sufficient appropriate evidence has been obtained from the procedures performed and, if not, the practitioner shall perform other procedures judged by the practitioner to be necessary in the circumstances to be able to form a conclusion on the financial statements. (Ref: Para. A103)If the practitioner is not able to obtain sufficient appropriate evidence to form a conclusion, the practitioner shall discuss with management and those charged with governance, as appropriate, the effects such limitations have on the scope of the review. (Ref: Para. A104–A105) The practitioner shall evaluate the evidence obtained from the procedures performed to determine the effect on the practitioner’s report. (Ref: Para. A103)
- File documentation provides evidence that:The engagement preconditions were met & the engagement was appropriately planned, including the determination of materiality;An understanding of the entity was obtained, including identification of areas where material misstatements were likely to arise;Review procedures were, in fact, performed and the results were obtained (along with supporting evidence reviewed and appropriate conclusions drawn); Significant matters arising and conclusion reached during the engagement have been appropriately addressed. This includes how the significant professional judgments were made in reaching those conclusions; and The limited assurance conclusion on the financial statements as a whole was appropriate based on the evidence obtained.
- This summarizes the steps involved in the reporting phase. Further explanation is contained on the following slides.The final step in performing a review engagement is to form an appropriate conclusion based on the evidence obtained.
- As a result of performing review procedures, misstatements may be identified that could result from either errors or fraud. Document and accumulate misstatements identified unless clearly trivial, with details of their nature and circumstances of their occurrence. Toward the end of the engagement, evaluate the impact of the identified misstatements (both for the current period and those brought forward from the previous period).ISRE 2400 (Revised) does not actually require the practitioner to request the correction of misstatements. However, such a request would generally be regarded as best practice.
- Effective and continuous two-way communication between the practitioner, engagement team, management, and TCWG is an important element in every engagement. This will help minimize any (particularly last-minute) surprises.
- Unmodified: Based on our review, nothing has come to our attention that causes us to believe that these financial statements do not fairly present, in all material respects, [or do not give a true and fair view of]the financial position of ABC Company as at December 31, 20X5, and (of)its financial performance and cash flows for the year then ended, in accordance with the International Financial Reporting Standard for Small- and Medium-sized Entities.When it is not possible to obtain the limited assurance as required by ISRE 2400 (Revised), a modified conclusion is necessary. There are two types of circumstances that require a modified conclusion: When financial statements are materially misstated; andWhen there is an inability to obtain sufficient appropriate evidence. The type of modification required to address the particular circumstances (qualified conclusion, adverse conclusion, or disclaimer of conclusion) is based on the following factors:The nature of the matter giving rise to the modification; andThe pervasiveness of its effects or possible effects on the financial statements.
- The Basis for Conclusion paragraph provides a concise description of the matter, giving rise to the modification under a heading such as: “Basis for Qualified Conclusion,” “Basis for Adverse Conclusion,” or “Basis for Disclaimer of Conclusion” as appropriate. This forms a separate paragraph in the practitioner’s report immediately preceding the conclusion paragraph. Also see the Review Guide for examples of modified conclusions (Appendix I) and the seven illustrations in ISRE 2400 (Revised), Appendix 2.
- There are a number of useful letters, checklists, and forms that can be adapted to meet the particular requirements/circumstances of individual review engagements and jurisdictions. Interested parties can email permissions@ifac.org for permission and access to the relevant files.IAASB standards do not override national law and regulations in a particular country. Accordingly, not all of the examples provided in the Guide may be appropriate in all jurisdictions. Practitioners should give due consideration to local law in the area in which the review is being undertaken.
- To conclude, a review engagement (in accordance with ISRE 2400 [Revised])is an excellent service designed to provide a meaningful level of assurance to increase the credibility of financial statements. It is appropriate where some assurance, but not necessarily reasonable assurance, is required. As a review requires the practitioner to both develop a sound understanding of the entity and its environment and exercise professional judgment in obtaining sufficient appropriate evidence, assurance skills and techniques are required. ISRE 2400 (Revised) is a modern standard for modern times. If you read it, you will understand why.