ISRE 2410

Review of Interim Financial Information Performed by the Independent Auditor of the Entity

1Objective and scope

ISRE 2410 establishes standards and provides guidance on the auditor's professional responsibilities when the auditor undertakes an engagement to review interim financial information of an audit client (half-year or quarterly financial statements or a condensed set under IAS 34), and on the form and content of the report. The auditor, having audited the annual statements, brings an understanding of the entity and its controls that a practitioner under ISRE 2400 lacks, so the review procedures are designed with that knowledge in mind. Listed companies in Kenya publish half-year results, and the Capital Markets Authority's regulations and the NSE listing rules expect them to be reviewed; the review does not provide a basis for an audit opinion and the report says so.

The objective of a review of interim financial information is to enable the auditor to express a conclusion whether, on the basis of the review, anything has come to the auditor's attention that causes the auditor to believe that the interim financial information is not prepared, in all material respects, in accordance with the applicable financial reporting framework.

2Key definitions

3Requirements

General principles and terms

• Comply with the ethical requirements relevant to the audit of the annual financial statements, implement quality management procedures applicable to the individual engagement, and plan and perform the review with professional scepticism, recognising that circumstances may exist that cause the interim financial information to require a material adjustment.
• Agree the terms of the engagement in an engagement letter: the objective of a review, the scope, management's responsibility for the interim information and for internal control, the auditor's responsibility, the fact that a review is not an audit and no audit opinion will be expressed, and the expected form and content of the report. The terms may be included in the audit engagement letter.

Procedures

• Obtain an understanding of the entity and its environment, including its internal control as it relates to the preparation of both annual and interim financial information, sufficient to plan and conduct the engagement: read the prior year audit documentation and any documentation of the previous interim review, consider significant risks identified in the last audit, consider materiality with reference to the framework for the interim period, and consider the nature of any corrected or uncorrected misstatements in the prior year's financial statements.
• Make inquiries, primarily of persons responsible for financial and accounting matters: whether the interim information has been prepared in accordance with the framework, whether there have been changes in accounting principles or their application, whether new transactions have required the application of new principles, whether there have been changes in the entity's internal control, whether management is aware of uncorrected misstatements, of fraud, of non-compliance, of subsequent events, of going concern issues, of related party transactions, and of significant commitments or contingencies.
• Perform analytical procedures designed to identify relationships and individual items that appear unusual and may reflect a material misstatement: comparing the interim information with the immediately preceding interim period, with the corresponding period of the prior year, with the most recent annual statements and with budgets; comparing ratios and indicators with expectations; and considering disaggregated data by month, segment or location.
• Perform other review procedures: read the minutes of meetings of shareholders, those charged with governance and other committees, and inquire about matters dealt with where minutes are not available; consider the effect of any modified audit report or of significant matters in the prior audit; obtain evidence that the interim information agrees or reconciles with the underlying records; read the interim information to consider whether it is in accordance with the framework, including adequate disclosure; and communicate with component auditors reviewing components.
• Inquire whether management has identified all events up to the date of the review report that may require adjustment or disclosure, and evaluate the going concern basis where events or conditions exist, inquiring about management's plans and their feasibility and evaluating whether disclosure is adequate.
• If a matter comes to the auditor's attention that leads to a question whether a material adjustment should be made, make additional inquiries or perform other procedures to enable a conclusion: the review does not become an audit, but the auditor does not close the file on an unresolved concern either.

Evaluating misstatements and representations

• Evaluate, individually and in aggregate, whether uncorrected misstatements that have come to the auditor's attention are material to the interim financial information, using the materiality for the interim period; exercise judgement on qualitative factors as in ISA 450.
• Obtain written representations from management: that it acknowledges its responsibility for internal control, that the interim information is prepared in accordance with the framework, that it believes the effect of uncorrected misstatements is immaterial (with a summary attached), that it has disclosed all significant facts relating to fraud, non-compliance, related parties and subsequent events, and that it has disclosed its plans in relation to any going concern matter.
• Read the other information that accompanies the interim financial information to consider whether it is materially inconsistent with the interim information; if so, and the interim information does not require amendment, consider whether the other information should be revised and communicate with those charged with governance where management refuses.

4Documentation and reporting

The auditor issues a written review report containing: a title (Report on Review of Interim Financial Information); an addressee; identification of the interim financial information reviewed, including the title of each statement and the date and period covered; a statement that management is responsible for the preparation and fair presentation of the interim information in accordance with the framework; a statement that the auditor is responsible for expressing a conclusion based on the review; a statement that the review was conducted in accordance with ISRE 2410, that a review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures, and that a review is substantially less in scope than an audit conducted in accordance with ISAs and consequently does not enable the auditor to obtain assurance that the auditor would become aware of all significant matters that might be identified in an audit, so that no audit opinion is expressed; the conclusion in the negative form; the date; the location; and the signature. Where the interim information is not prepared in all material respects in accordance with the framework and management does not correct it, the conclusion is qualified or adverse; where the auditor is unable to complete the review, the report describes the limitation and either qualifies the conclusion or states that a conclusion cannot be expressed; a material uncertainty related to going concern that is adequately disclosed is drawn to attention in an Emphasis of Matter paragraph, and one that is not adequately disclosed produces a qualified or adverse conclusion. Significant matters are communicated to the appropriate level of management and to those charged with governance, including fraud, non-compliance and control deficiencies, and documentation sufficient to provide a basis for the conclusion and to show that the review was performed in accordance with the standard is prepared and retained.

5Examinable focus