ISAs – Summaries and Application Guide ISRE 2410: Review of Interim Information

ISRE 2410
[STATUTORY] REVIEW OF INTERIM
FINANCIAL INFORMATION BY
AUDITOR

LO # LEARNING OBJECTIVE PARAGRAPHS

INTRODUCTION (SCOPE, OBJECTIVE, AND

LO 1 1–3
DEFINITION)
GENERAL PRINCIPLES OF A REVIEW OF INTERIM
LO 2 4–6
FINANCIAL INFORMATION
OBJECTIVE OF AN ENGAGEMENT TO REVIEW
LO 3 7–9
INTERIM FINANCIAL INFORMATION
LO 4 AGREEING THE TERMS OF THE ENGAGEMENT 10–11
UNDERSTANDING THE ENTITY AND ITS INTERNAL
LO 5 12–18
CONTROL
INQUIRIES, ANALYTICAL AND OTHER REVIEW
LO 6 19–29
PROCEDURES
LO 7 EVALUATION OF MISSTATEMENTS 30–33
LO 8 MANAGEMENT REPRESENTATIONS 34–35
AUDITOR’S RESPONSIBILITY FOR ACCOMPANYING
LO 9 36–37
INFORMATION
LO 10 COMMUNICATION 38–42
LO 11 AUDITOR’S REPORT ON A REVIEW ENGAGEMENT 43–44
LO 12 MODIFICATIONS IN REVIEW REPORT 45–63
LO 13 DOCUMENTATION 64
APX DIFFERENT EXAMPLES OF REVIEW REPORT Appendices 1 – 7

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ISAs – Summaries and Application Guide ISRE 2410: Review of Interim Information

Difference between ISRE 2400 & ISRE 2410

ISRE 2400 ISRE 2410

Word “Practitioner” is used. Word “Auditor” is used.
Review report contains separate sections for Management and Auditor’s responsibilities are
responsibilities of Management and included in introductory paragraph.
Practitioner.
Period covered may be 3 months, 6 months, 9 Period covered is usually 6 months, and can
months, or even 12months. never be 12 months.
Review report may be restricted. Review report is usually not restricted.

Requirements for Quarterly Financial Statements of Listed Companies in Pakistan:

Quarter Period to be presented Assurance Required

1st Quarter 3 months Vs. 3 months Not required.
6 months Vs. 6 months
2nd Quarter / Half-yearly + Review of 6 months
3 months Vs. 3 months
9 months Vs. 9 months
3rd Quarter + Not required.
3 months Vs. 3 months

LO 1: INTRODUCTION (SCOPE, OBJECTIVE, AND DEFINITION):

The auditor who is engaged to perform a review of interim financial information should perform
the review in accordance with this ISRE.

LO 2: GENERAL PRINCIPLES OF A REVIEW OF INTERIM FINANCIAL

INFORMATION:
The auditor should comply with the ethical requirements relevant to the audit of the annual
financial statements of the entity.

The auditor should implement quality control procedures.

The auditor should plan and perform the review with an attitude of professional skepticism.

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ISAs – Summaries and Application Guide ISRE 2410: Review of Interim Information

LO 3: OBJECTIVE OF AN ENGAGEMENT TO REVIEW INTERIM FINANCIAL

INFORMATION:
A comparison of Reasonable Assurance Engagement and Limited Assurance Engagement:

Type of Level of Evidence-gathering The assurance

Definition/Objective Example
engagement Assurance procedures report
Procedures includes
An engagement to provide high
-Preliminary
but not absolute assurance.
Reasonable Engagement Activities Audit of
Objective is to reduce the audit Positive form of
assurance Reasonable -Planning Engagement Financial
risk to provide basis for positive conclusion.
engagement -Performing Statements
form of expression of
Engagement
practitioner’s conclusion.
-Issuing Report.
An engagement to provide
Procedures are
moderate level of assurance.
Limited deliberately limited as Review of
Objective is to reduce the audit Negative form
assurance Limited compared to a Financial
risk to provide basis for of conclusion.
engagement reasonable assurance Statements
negative form of expression of
engagement
practitioner’s conclusion.

LO 4: AGREEING THE TERMS OF THE ENGAGEMENT:

Auditor and client should agree the terms of review engagement i.e.
 Objective and scope of a review.
 Management’s responsibilities
 Management’s agreement:
o to provide written representations to auditor.
o to include review report in the document containing interim financial information.
 Expected form and content of the report to be issued

These terms may be combined with terms of audit engagement.

LO 5: UNDERSTANDING THE ENTITY AND ITS INTERNAL CONTROL:

Auditor shall obtain understanding of entity and internal control to assess risk and determine
procedures to be performed.

If auditor is newly appointed: (who has not yet performed annual audit)
A newly appointed auditor shall obtain understanding by:
i. Making inquiries of predecessor auditor.
ii. Reviewing (where possible) predecessor auditor’s documentation for the previous annual
audit.
iii. Reviewing (where possible) predecessor auditor’s documentation for any prior interim
period in the current year.

In doing so, auditor considers following matters which may have been identified in prior periods:
i. Significant matters (e.g. deficiencies in internal control, significant risks).
ii. nature of corrected and uncorrected misstatements.

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ISAs – Summaries and Application Guide ISRE 2410: Review of Interim Information

If auditor has already audited the entity’s financial statements:

If auditor has performed one or more annual audits for the entity, he would have already obtained
understanding as required by ISA – 315. He shall update his understanding in a review engagement
by performing procedures described in Paragraph 15.

LO 6: INQUIRIES, ANALYTICAL AND OTHER REVIEW PROCEDURES:

Review Procedures:
The auditor should make inquiries, primarily of persons responsible for financial and accounting
matters, and perform analytical and other review procedures to enable the auditor to conclude on
financial statements.
A review ordinarily does not require tests of the accounting records through inspection,
observation or confirmation.

List of Inquiries, analytical and other review procedures performed is available in Paragraph 21
and Appendix 2.

During review, auditor may decide to perform audit procedures.

Points to Note:
 Usually inquiry letter to lawyers is not sent unless a matter comes to auditor’s attention which increases risk.
 Auditor inquires management about subsequent events, however no other procedures are performed to identify
subsequent events.
 Auditor inquires about management’s assessment of going concern. If an event or condition casting doubt is
identified, auditor:
o inquires management about its plants for future actions (e.g. to liquidate assets, borrow money, increase
capital, restructure debt, reduce or delay expenditures).
o inquires about feasibility of plan.
o considers adequacy of disclosures.
However, auditor does not corroborate feasibility of management’s plans.
 If there is a risk that an item may be misstated, auditor shall perform additional procedures sufficient to resolve the
issue.

LO 7: EVALUATION OF MISSTATEMENTS:
The auditor should evaluate, individually and in the aggregate, whether uncorrected misstatements
that have come to the auditor’s attention are material to the interim financial information.

Auditor shall also consider qualitative aspects of misstatements.

Auditor may also determine level of clearly trivial misstatements.

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ISAs – Summaries and Application Guide ISRE 2410: Review of Interim Information

LO 8: MANAGEMENT REPRESENTATIONS:
The auditor should obtain written representation from management:
1. Regarding its responsibilities.
2. That uncorrected misstatements are immaterial.
3. Assessment of risk of fraud.
4. frauds or suspected frauds.
5. Noncompliance with laws and regulations; and
6. Significant subsequent events.
Auditor can also obtain additional representations.

LO 9: AUDITOR’S RESPONSIBILITY FOR ACCOMPANYING INFORMATION:

The auditor should read the other information that accompanies the interim financial information.

If there is Inconsistency with interim financial information:

If there is inconsistency and other information is not corrected by management, auditor shall
describe this in Other Matter paragraph.

If there is a misstatement of Fact:

Auditor communicates with TCWG and obtains legal advice.

Point to Note:
 Misstatement of Fact means misstatement in information not related to financial information.

LO 10: COMMUNICATION:
If auditor identifies a misstatement, he communicates the misstatement to appropriate level of
management.

If management does not take appropriate actions, auditor shall communicate to TCWG, orally or in
writing.

If TCWG does not take appropriate actions, auditor shall:

 modify report, or
 withdraw from engagement and consider resigning from annual audit.

The auditor should communicate relevant matters of governance interest arising from the review to
TCWG.

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ISAs – Summaries and Application Guide ISRE 2410: Review of Interim Information

LO 11: AUDITOR’S REPORT ON A REVIEW ENGAGEMENT:

A review report shall be in writing and shall consist of following elements:
1. A title of report
2. The addressee
3. An introductory paragraph that:
a. Identifies the title of each of financial statements, and period covered;
b. States that the financial statements have been reviewed;
4. A description of the management’s responsibility for the preparation of the financial
statements.
5. A description of the Auditor's responsibility to express a conclusion on the financial
statements.
6. A description/scope of a review of financial statements, with following statements:
a. A review is performed under ISRE, and is a limited assurance engagement.
b. The auditor performs procedures, primarily consisting of inquiries, analytical
procedures, and other procedures.
c. The procedures performed in a review are substantially less than those performed
in an audit conducted in accordance with ISAs and, accordingly, the auditor does not
express an audit opinion on the financial statements.
7. A paragraph under the heading "Conclusion". If conclusion is modified, reason of
modification shall also be explained.
8. The date of the report.
9. The signature.
10. The Place.

Study Tip
Practitioner can also include in his report “Emphasis of matter” and/or “Other matter” paragraphs.

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ISAs – Summaries and Application Guide ISRE 2410: Review of Interim Information

LO 12: MODIFICATIONS IN REVIEW REPORT:

Result Effect on Report

If financial statements are not materially misstated Unqualified Conclusion
If financial statements are misstated and effect is Qualified conclusion
material.
If financial statements are misstated and effect is Adverse conclusion
pervasive.
If there is a scope limitation by management, Auditor should not accept engagement.
before acceptance.
If there is a scope limitation by management, after Auditor shall:
acceptance. - communicate it to TCWG
- express Disclaimer of conclusion. ***
*** However, in rare circumstances Qualified conclusion may be expressed if effect is confined to
specific element and is not pervasive.

Going Concern Issues and Effect on Review Report:

If there is an uncertainty relating to going concern or other significant uncertainty, auditor shall:
 include Emphasis of Matter Paragraph in his review report (if adequately disclosed).
 Express Qualified or Adverse conclusion (if not adequately disclosed).

Other Considerations:

If document containing interim financial Auditor shall seek legal advice to determine
information indicates that these have been appropriate course of action.
reviewed, but review report is not included in
the document
If auditor issued modified review report, but Auditor shall seek legal advice to determine
management issued interim financial statements appropriate course of action. Further, auditor
without review report shall also consider withdrawal from audit of
annual financial statements.

LO 13: DOCUMENTATION:
The auditor should prepare review documentation that is sufficient and appropriate to provide a
basis for the auditor’s conclusion and to provide evidence that the review was performed in
accordance with this ISRE and applicable legal and regulatory requirements.

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 ISAs – Summaries and Application Guide ISRE 2410: Review of Interim Information

APX: DIFFERENT EXAMPLES OF REVIEW REPORT:

Examples of Review Reports on Interim Financial Information (Unqualified Conclusion)

AUDITORS’ REPORT TO THE MEMBERS ON REVIEW OF CONDENSED INTERIM FINANCIAL INFORMATION

Introduction
We have reviewed the accompanying condensed interim balance sheet of ABC Entity as of March 31, 20X1 and the
related condensed interim profit and loss account, condensed interim statement of comprehensive income,
condensed interim cash flow statement and condensed interim statement of changes in equity for the half year
then ended (here-in-after referred to as the “condensed interim financial information”). Management is
responsible for the preparation and presentation of this condensed interim financial information in accordance
with approved accounting standards as applicable in Pakistan for interim financial reporting. Our responsibility is
to express a conclusion on this condensed interim financial information based on our review.

Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of
Interim Financial Information Performed by the Independent Auditor of the entity.” A review of interim financial
information consists of making inquiries, primarily of persons responsible for financial and accounting matters,
and applying analytical and other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.

Conclusion***
Based on our review nothing has come to our attention that causes us to believe that the accompanying interim
financial information as of and for the half year ended March 31, 2012 does not give a true and fair view of (or
“does not present fairly, in all material respects,”) in accordance with approved accounting standards as applicable
in Pakistan for interim financial reporting.
Auditor
Auditor
Date
Address

Qualified Conclusion due to misstatement (Opinion Paragraph Only):

Basis for Qualified Conclusion
Based on information provided to us by management, ABC Entity has excluded from property and
long-term debt certain lease obligations that we believe should be capitalized to conform with
AFRF. This information indicates that if these lease obligations were capitalized at March 31, 20X1,
property would be increased by Rs. ______, long-term debt by Rs. ______, and net income and earnings
per share would be increased (decreased) by Rs. ________, Rs. _________, Rs. ________, and Rs. ________,
respectively for the three-month period then ended.

Qualified Conclusion
Based on our review, with the exception of the matter described in the preceding paragraph,
nothing has come to our attention that causes us to believe that the accompanying interim financial
information does not give a true and fair view of (or “does not present fairly, in all material
respects,”) the financial position of the entity as at March 31, 20X1, and of its financial performance
and its cash flows for the three month period then ended in accordance with AFRF.

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ISAs – Summaries and Application Guide ISRE 2410: Review of Interim Information

Qualified Conclusion due to scope limitation (Opinion Paragraph Only):

Basis for Qualified Conclusion
As a result of a fire in a branch office on (date) that destroyed its accounts receivable records, we
were unable to complete our review of accounts receivable totaling Rs. ________ included in the
interim financial information. The entity is in the process of reconstructing these records and is
uncertain as to whether these records will support the amount shown above and the related
allowance for uncollectible accounts. Had we been able to complete our review of accounts
receivable, matters might have come to our attention indicating that adjustments might be
necessary to the interim financial information.

Qualified Conclusion
Except for the adjustments to the interim financial information that we might have become aware
of had it not been for the situation described above, based on our review, nothing has come to our
attention that causes us to believe that the accompanying interim financial information does not
give a true and fair view of (or “does not present fairly, in all material respects,”) the financial
position of the entity as at March 31, 20X1, and of its financial performance and its cash flows for
the three-month period then ended in accordance with AFRF.

Adverse Conclusion due to misstatement (Opinion Paragraph Only):

Basis for Adverse Conclusion
Commencing this period, management of the entity ceased to consolidate the financial statements
of its subsidiary companies since management considers consolidation to be inappropriate because
of the existence of new substantial non-controlling interests. This is not in accordance with AFRF.
Had consolidated financial statements been prepared, virtually every account in the interim
financial information would have been materially different.

Adverse Conclusion
Our review indicates that, because the entity’s investment in subsidiary companies is not accounted
for on a consolidated basis, as described in the preceding paragraph, this interim financial
information does not give a true and fair view of (or “does not present fairly, in all material
respects,”) the financial position of the entity as at March 31, 20X1, and of its financial performance
and its cash flows for the three-month period then ended in accordance with AFRF.

CONCEPT REVIEW QUESTION

Q. 1
You, the Audit Manager, have been asked by the Engagement Partner to draft “Negative Assurance” in your report on the
accounts of WWF Manufacturing Company Limited for the year ended June 30, 2000, based on your Review which you
carried out as result of your firm’s engagement to review financial statements.

Required:
Draft the requested Negative Assurance. (05)
(ICAP, CFAP 06 Level – Winter 2000)