ISRE 2400 (Revised)

Engagements to Review Historical Financial Statements

1Objective and scope

ISRE 2400 (Revised) deals with 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 with the form and content of the practitioner's report. A review is a limited assurance engagement: the practitioner performs primarily inquiry and analytical procedures to obtain sufficient appropriate evidence as the basis for a conclusion on the financial statements as a whole, expressed in a negative form ('nothing has come to our attention'). It gives meaningfully less assurance than an audit, and the report says so. Reviews are common for entities exempt from statutory audit, for lenders who want some assurance without the cost of an audit, and for grant recipients; a review of interim financial information by the entity's own auditor is governed by ISRE 2410 instead.

The objectives are to obtain limited assurance, primarily by performing inquiry and analytical procedures, about whether the financial statements as a whole are free from material misstatement, enabling the practitioner to express a conclusion on whether anything has come to the practitioner's attention that causes the practitioner to believe the statements are not prepared, in all material respects, in accordance with the framework; and to report on the financial statements as a whole and communicate as the standard requires.

2Key definitions

3Requirements

Ethics, quality, acceptance and terms

• Comply with relevant ethical requirements including independence, and with ISQM 1 at the firm level; the engagement partner takes responsibility for the overall quality of each engagement.
• Accept or continue only if the practitioner is satisfied that the preconditions are present: the framework is acceptable, management acknowledges its responsibilities for the financial statements, for internal control, and for providing access, and management agrees to provide written representations. Do not accept if the practitioner has reason to believe ethical requirements will not be satisfied, if a preliminary understanding suggests that information needed is unlikely to be available or reliable, or if management imposes a limitation on scope that will lead to a disclaimer.
• Do not accept an engagement in which the review is requested in place of an audit that law requires, and do not accept a change from an audit to a review without reasonable justification (a change in circumstances or a misunderstanding of the nature of the service, not an unfavourable audit finding).
• Agree the terms in an engagement letter: the intended use and distribution of the statements, the framework, the objective and scope of the review, the responsibilities of the practitioner and management, a statement that the engagement is not an audit and will not express an audit opinion, and the expected form and content of the report.

Performing the review

• Determine materiality for the financial statements as a whole, and apply it in designing procedures and evaluating results, revising it as the review progresses.
• Obtain an understanding of the entity and its environment and the applicable framework sufficient to identify areas where material misstatements are likely to arise and to design procedures to address them: the business, industry and regulation, the accounting policies and their application, the accounting system and records, and the nature and complexity of the financial statements.
• Design and perform inquiry and analytical procedures to address all material items, including disclosures, and to focus on areas where material misstatements are likely. Inquiries of management cover how it makes significant estimates, the identification of related parties, significant unusual transactions, events after the period end, going concern, fraud and non-compliance, and the basis for its assertion on the going concern basis. Analytical procedures compare with prior periods, budgets and industry data and consider relationships within the data.
• Perform procedures addressing specific matters: related parties, fraud and non-compliance, going concern (inquire whether events or conditions exist that cast significant doubt, and if so, inquire about management's plans and evaluate their feasibility), and events after the period end (inquire only; no active search after the report date).
• If the practitioner becomes aware of a matter that causes belief that the financial statements may be materially misstated, design and perform additional procedures sufficient to conclude whether the matter is likely to cause the statements as a whole to be materially misstated, or to determine that it does not. These may be inspection, confirmation or recalculation; the standard does not limit them to inquiry and analytical review once a concern is raised.
• Reconcile the financial statements to the underlying accounting records, and read the statements to evaluate whether they adequately refer to the framework and whether, in light of the understanding obtained and the procedures performed, they appear consistent with it.

Concluding

• Obtain written representations from management, dated as near as practicable to the date of the report, that management has fulfilled its responsibilities, has provided all information, that all transactions have been recorded, and covering the specific matters inquired about (related parties, fraud, non-compliance, subsequent events, going concern, uncorrected misstatements). If management refuses, or the representations are unreliable, the practitioner disclaims the conclusion or withdraws.
• Evaluate the evidence obtained, including whether sufficient appropriate evidence has been obtained and whether any uncorrected misstatements, individually or in aggregate, are material, and communicate them to management with a request to correct them.
• Form a conclusion on the financial statements as a whole, considering the same qualitative aspects of accounting practice as an auditor would under ISA 700, and, for a fair presentation framework, whether the statements achieve fair presentation.

4Documentation and reporting

The report is in writing and includes: a title indicating an independent practitioner's review report; the addressee; an introductory paragraph identifying the financial statements reviewed and referring to the summary of accounting policies; a description of management's responsibility; a description of the practitioner's responsibility, stating that the review was conducted in accordance with ISRE 2400 (Revised), that a review is a limited assurance engagement consisting primarily of inquiry and analytical procedures and evaluating the evidence obtained, and that the procedures performed are substantially less than those performed in an audit, so that the practitioner does not express an audit opinion; a paragraph on the practitioner's independence and ethical responsibilities; the conclusion; where relevant, an Emphasis of Matter or Other Matter paragraph, or a material uncertainty related to going concern paragraph; and the signature, date and location. Documentation follows the same experienced-practitioner test as ISA 230, recording the procedures performed, the evidence obtained, significant matters and their resolution, and the basis for the conclusion.

5Examinable focus