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OVERVIEW OF ED - ISRE 2400
Presenter:
Ashif Kassam
Group Chief Executive, RSM Ashvir
ISRE 2400
Practitioners responsibility when engaged to perform a review of historical financial statements when the practitioner is not the auditor, and report on the financial statements.
Concept can be applied, and adapted as necessary to reviews of other types of historical financial information.
Limited assurance engagements for information other than historical financial information performed under ISAE 3000.
Scope
ISRE 2400
ISRE 2400
Premised on basis that firm is subject to ISQC 1:The firm and its personnel comply with professional
standards and applicable legal and regulatory requirements.
Report issued is appropriate in the circumstances. Key to an SMP - Acceptance and continuation, engagement
performance and monitoring.
ISQC 1
ISRE 2400
General principles of integrity; objectivity; professional competence and due care; confidentiality; and professional behavior apply.
IESBA Code requires that the practitioner be independent of the entity - without being affected by influences that might compromise the practitioner’s conclusion.
Ethical Requirements
ISRE 2400
Review of historical financial statements - a limited assurance engagement - evidence-gathering procedures that are limited but sufficient to provide a basis for conclusion.
May be requested for entities that are exempt from audits or private contracts (e.g. funding arrangements).
Proceduresprimarily inquiry and analytical procedures - to obtain
sufficient appropriate evidence as a basis for the conclusion on the financial statements taken as a whole.
Material misstatement - designs and performs such additional procedures as the practitioner considers necessary in the circumstances.
Review Engagements
ISRE 2400
To conclude, through performing primarily inquiry and analytical procedures, and evaluating the sufficiency and appropriateness of evidence obtained, whether anything has come to the practitioner’s attention that causes the practitioner to believe the financial statements are not prepared, in all material respects, in accordance with an applicable financial reporting framework; and
To report on the financial statements as a whole, and communicate as required by this ISRE.
If not able to conclude (scope limitation) - disclaim or withdraw, where withdrawal is possible.
Objective
ISRE 2400
Analytical procedures - Evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount.
Inquiry - Inquiry consists of seeking information of knowledgeable persons, both financial and non-financial, within the entity.
Definitions
ISRE 2400
Maintaining professional skepticism is necessary for critical assessment of evidence - recognising that circumstances may exist that cause the financial statements to be materially misstated.Questioning inconsistencies. Investigating contradictory evidence.Questioning reliability of documents and responses.Conditions that may indicate possible fraud.
A belief that management is are honest and has integrity does not relieve the practitioner of the need to maintain professional skepticism or allow the practitioner to be satisfied with evidence that is inadequate.
Requirements - Professional Skepticism
ISRE 2400
Application of professional judgement in planning and performing a review including:Materiality.Nature, timing and extent of procedures.Evaluating the sufficiency and appropriateness of the
evidence obtained.Management’s judgements in applying the applicable
financial reporting framework / estimates. Facts and circumstances that are known to the practitioner
up to the date of the practitioner’s report.
Requirements - Professional Judgment
ISRE 2400
Responsibility of the engagement partner including:Compliance with professional standards and ethical
requirements.Compliance with the firm’s QC policy.Client acceptance and continuation procedures.Competence of the engagement team.Directing, supervising and performance of the
engagement.Maintaining appropriate engagement documentation. Issuing the report that is appropriate in the circumstances.
Requirements - Engagement Level Quality Control
ISRE 2400
Pre-acceptance - Integrity of key owners, key management and those charged with governance.
IESBA Code - Not to be associated with financial information that is materially false or misleading (including omission of relevant information or material facts).
If risk cannot be mitigated through appropriate safeguards - decline the engagement.
Requirements - Acceptance and Continuation
ISRE 2400
Not to accept the engagement unless:There is a rational purpose for the engagement.Based on preliminary understanding, the information
needed to perform the engagement is available and reliable.
There is no doubt on the integrity of management.There is no indication of a scope limitation which will lead
to a disclaimer.
Requirements - Acceptance and Continuation
ISRE 2400
Pre-conditions of acceptance:Financial reporting framework is acceptable.Management acknowledgement that it understands its
responsibility for:• The preparation of the financial statements;• Internal controls that enable the preparation of financial
statements that are free from material misstatements; and
• Providing access to all information and unrestricted access to persons within the entity.
Requirements - Acceptance and Continuation
ISRE 2400
Agreeing the terms in writing prior to performance. To include:Objective and scope of the review.Respective responsibilities of the practitioner and the
management. Identification of the applicable financial reporting
framework.Not an audit Intended use and distribution.Expected form and contents of the practitioners’ report.
Recurring engagements - new letter where there is change or a need to remind management of the existing terms.
Requirements - Terms of Engagement
ISRE 2400
On a timely basis during the course of the engagement.
Also includes inquiries that practitioner makes in the course of performing the procedures.
Communicate all significant matters concerning the review.
Requirements - Communication with Management / Governance
ISRE 2400
For financial statements as a whole - revised based on new information or changes in the practitioner’s understanding of the entity and its operations.
Applied in designing the procedures and evaluating the results obtained.
Requirements - Performing the Engagement - Materiality
ISRE 2400
The entity and its environment, including the entity’s accounting system and accounting records relevant to the review; and
The applicable financial reporting framework, including its application in the industry in which the entity operates;
sufficient to identify areas in the financial statements where material misstatements are likely to arise, and to be able to design procedures to address those areas.
Requirements - Performing the Engagement - Understanding
ISRE 2400
Size and complexity Ownership, financing and governance structure Significant or unusual transactions Applicable financial reporting framework Going concern doubts Financial reporting obligations Level of development of the management and governance
structure and oversight of the accounting function Complexity of the financial accounting and reporting systems Accounting adjustments
Understanding is an iterative process
Requirements - Performing the Engagement - Understanding
ISRE 2400
Procedures to:Address all material items in the financial statements
(including disclosures).Focus on where material misstatements are likely to arise
and respond to the risks.Subsequent event - any adjustments required.
Requirements - Performing the Engagement - Designing Procedures
ISRE 2400
Inquiries of management shall include:Significant accounting policies used and their applicationDevelopment of significant accounting estimates Identification of related parties / transactionsSignificant, unusual and complex transactions including:
Changes in activities / operationsSignificant changes to material contracts / debt contractsSignificant journal entries / adjustmentsSignificant transaction near reporting dateStatus of uncorrected misstatements of previous periodImpact of transactions / implications with related parties
Requirements - Performing the Engagement - Inquiry
ISRE 2400
Inquiries of management shall include:Existence of any actual or suspected or alleged:
Frauds or illegal acts.Non-compliance with laws and regulations.
Ability to continue as a going concern. Evaluating responses is integral to the inquiry process -
consistency and reasonableness in light of results obtained from other procedures.
Requirements - Performing the Engagement - Inquiry
ISRE 2400
Inquiries of management may include:Control environmentProcedures for recording classifying and summarising
transactionsCompleteness of transactionsKey resolutionsCommunication from regulatory agenciesSubsequent events
Requirements - Performing the Engagement - Inquiry
ISRE 2400
Data from accounting system and records is satisfactory. Considerations relevant:
Source of informationComparabilityNature and relevance of information availableControls over preparation and review of information.
Requirements - Performing the Engagement - Analytical Procedures
ISRE 2400
Related Party Remain alert to related party transactions not previously
identified or disclosed. Additional inquiry targeted to:
Nature of the transactions.Business rationale.
Fraud and Non-compliance With Laws & Regs Communicate to senior management / governance. Communication to third parties. Effect on the financial statements.
Requirements - Performing the Engagement - Other Procedures
ISRE 2400
Going Concern If there is a significant doubt about the entity to continue as a
going concern:Plans for future action and their feasibilityAssess whether financial statements are materially misstatedAssessment of at least 12 months from date of financial
statements.
Reconciling to Underlying Accounting Records Tracing the financial statement amounts and balances to the
relevant accounting records e.g. general ledger / trial balance. Review accounting to identify significant or unusual
transactions.
Requirements - Performing the Engagement - Other Procedures
ISRE 2400
Where the results obtained form inquiry and analytics do not adequately address areas in the financial statements where material misstatements are likely to arise - perform additional procedures.
Could include:Additional inquiry or analytical procedures - performed in
greater detail; orOther types of procedures - verification procedures (including
third-party confirmations), focused on obtaining evidence about the existence, valuation or measurement, or timing of those amounts or disclosures in respect of specific accounts or transactions.
Requirements - Performing the Engagement - Additional Procedures
ISRE 2400
If the practitioner is not able to obtain sufficient appropriate evidence to either conclude that the matter is not likely to cause the financial statements as a whole to be materially misstated, or determine that the matter does cause the financial statements as a whole to be materially misstated - then a scope limitation exists - consider impact on the report.
Requirements - Performing the Engagement - Additional Procedures
ISRE 2400
Management has fulfilled its responsibility for the preparation of financial statements.
Provided the practitioner with all relevant information and access to information.
All transactions have been recorded and are reflected in the financial statements.
The identity of the entity’s related parties / related party relationships / transactions of which management is aware.
Significant facts relating to any frauds or suspected frauds known to management that may have affected the entity.
Known actual or possible non-compliance with laws and regulations.
Requirements - Performing the Engagement - Written Representations
ISRE 2400
All information relevant to the preparation of the financial statements in accordance with the going concern assumption.
Significant events that have occurred subsequent to the date of the financial statements and through to the date of the practitioner’s report, that may require adjustments.
If management representations not provided: Disclaim a conclusion on the financial statements; or Withdraw from the engagement if permitted by law.
Date of the written representations - as near as practicable to, but not after, the date of the practitioner’s report.
Requirements - Performing the Engagement - Written Representations
ISRE 2400
The practitioner shall consider the impact of: Unadjusted misstatements identified during the review, and
in the previous year’s review of the entity’s financial statements, on the financial statements as a whole; and
Qualitative aspects of the entity’s accounting practices, including indicators of possible bias in management’s judgments.
Requirements - Forming the Conclusion
ISRE 2400
If the practitioner is not able to obtain sufficient appropriate evidence to form a conclusion on the financial statements, the practitioner shall: Discuss with management and those charged with
governance, as appropriate, the effects such limitations have on the scope of the review; and
Determine the effects of such limitations on the practitioner’s report.
Requirements - Forming the Conclusion
ISRE 2400
Not an audit - practitioner does not express an audit opinion. Special purpose financial statements - alert to the users that the
financial statements may not be suitable for other purposes / supplemented by restriction on distribution.
Reporting
ISRE 2400
Documentation sufficient to enable an experienced practitioner, having no previous connection with the engagement to understand:The nature, timing, and extent of the procedures performed;Results obtained from the procedures, and the practitioner’s
conclusions formed on the basis of those results; andSignificant matters arising during the engagement, the
practitioner’s conclusions reached thereon, and significant professional judgements made in reaching those conclusions.
Documentation
ISRE 2400
In documenting the nature, timing and extent of procedures performed, the practitioner shall record:Who performed the work and the date such work was
completed; andWho reviewed the work performed for the purpose of quality
control for the engagement, and the date and extent of the review.
The practitioner shall also document discussions with management, those charged with governance, and others as relevant to the performance of the review of significant matters arising during the engagement, including the nature of those matters.
Documentation
ISRE 2400
Clear communication of practitioner’s objectives. Applying the concept of ‘limited assurance’ in a review
of financial statements - consistency of approach for consistency of approach for limited assurance engagements (e.g. proposed ISAE limited assurance engagements (e.g. proposed ISAE 3410).3410).
Work effort required to include: role of risk identification.conditions that trigger “additional procedures”.
Key Issues and Challenges
ISRE 2400
Reporting communicating what is done in a review.ommunicating what is done in a review. communicating the practitioner’s conclusion on communicating the practitioner’s conclusion on
the financial statements.the financial statements. Understanding of the review as a distinct type of
assurance engagement - use of a “stand-alone standard”.
Communication review as distinct from the audit - purpose is also review as distinct from the audit - purpose is also
to provide assurance.to provide assurance. managing user expectations.managing user expectations.
Key Issues and Challenges
ISRE 2400
Need for communication about the use of “hybrid engagements” where scope of services is designed to meet particular user needs, for example: reviews with specific procedures (e.g. certain types of reviews with specific procedures (e.g. certain types of
audit procedures).audit procedures). compilations with specific procedures.compilations with specific procedures.
Development of implementation support - Greater need may Greater need may exist in countries where services other than the audit have exist in countries where services other than the audit have not previously been used.not previously been used.
Development of further guidance.
Key Issues and Challenges
ISRE 2400
CAVEATThis presentation has been prepared for general guidance only. It does not relieve one from reading the entire text of the standard nor does it constitute professional advice. The views expressed herein are of the presenter, and not of RSM Ashvir or of any body that the presenter or RSM Ashvir is affiliated to. Accordingly, to the extent permitted by law, the presenter, RSM Ashvir or any of the affiliations (including their employees and agents) accept no liability, and disclaim all responsibility, for the consequences of anyone acting, or refraining from acting, in reliance on the information contained in these slides or for any decision based on it, or for any consequential, special or similar damages even if advised of the possibility of such damages.
