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OVERVIEW OF ED - ISRE 2400
Presenter:
Ashif Kassam
Group Chief Executive, RSM Ashvir
ISRE 2400
Scope
 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.
ISRE 2400
ISRE 2400
ISQC 1
 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.
ISRE 2400
Ethical Requirements
 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.
ISRE 2400
Review Engagements
 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).
 Procedures
 primarily 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.
ISRE 2400
Objective
 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.
ISRE 2400
Definitions
 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.
ISRE 2400
Requirements - Professional Skepticism
 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.
ISRE 2400
Requirements - Professional Judgment
 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.
ISRE 2400
Requirements - Engagement Level Quality Control
 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.
ISRE 2400
Requirements - Acceptance and Continuation
 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.
ISRE 2400
Requirements - Acceptance and Continuation
 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.
ISRE 2400
Requirements - Acceptance and Continuation
 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.
ISRE 2400
Requirements - Terms of Engagement
 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.
ISRE 2400
Requirements - Communication with Management / Governance
 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.
ISRE 2400
Requirements - Performing the Engagement - Materiality
 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.
ISRE 2400
Requirements - Performing the Engagement - Understanding
 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.
ISRE 2400
Requirements - Performing the Engagement - Understanding
 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
ISRE 2400
Requirements - Performing the Engagement - Designing Procedures
 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.
ISRE 2400
Requirements - Performing the Engagement - Inquiry
 Inquiries of management shall include:
 Significant accounting policies used and their application
 Development of significant accounting estimates
 Identification of related parties / transactions
 Significant, unusual and complex transactions including:
Changes in activities / operations
Significant changes to material contracts / debt contracts
Significant journal entries / adjustments
Significant transaction near reporting date
Status of uncorrected misstatements of previous period
Impact of transactions / implications with related parties
ISRE 2400
Requirements - Performing the Engagement - Inquiry
 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.
ISRE 2400
Requirements - Performing the Engagement - Inquiry
 Inquiries of management may include:
 Control environment
 Procedures for recording classifying and summarising
transactions
 Completeness of transactions
 Key resolutions
 Communication from regulatory agencies
 Subsequent events
ISRE 2400
Requirements - Performing the Engagement - Analytical Procedures
 Data from accounting system and records is satisfactory.
 Considerations relevant:
 Source of information
 Comparability
 Nature and relevance of information available
 Controls over preparation and review of information.
ISRE 2400
Requirements - Performing the Engagement - Other Procedures
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.
ISRE 2400
Requirements - Performing the Engagement - Other Procedures
Going Concern
 If there is a significant doubt about the entity to continue as a
going concern:
 Plans for future action and their feasibility
 Assess whether financial statements are materially misstated
 Assessment 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.
ISRE 2400
Requirements - Performing the Engagement - Additional Procedures
 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; or
 Other 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.
ISRE 2400
Requirements - Performing the Engagement - Additional Procedures
 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.
ISRE 2400
Requirements - Performing the Engagement - Written Representations
 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.
ISRE 2400
Requirements - Performing the Engagement - Written Representations
 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.
ISRE 2400
Requirements - Forming the Conclusion
 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.
ISRE 2400
Requirements - Forming the Conclusion
 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.
ISRE 2400
Reporting
 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.
ISRE 2400
Documentation
 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; and
 Significant matters arising during the engagement, the
practitioner’s conclusions reached thereon, and significant
professional judgements made in reaching those
conclusions.
ISRE 2400
Documentation
 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; and
 Who 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.
ISRE 2400
Key Issues and Challenges
 Clear communication of practitioner’s objectives.
 Applying the concept of ‘limited assurance’ in a review
of financial statements - consistency of approach for
limited assurance engagements (e.g. proposed ISAE
3410).
 Work effort required to include:
role of risk identification.
conditions that trigger “additional procedures”.
ISRE 2400
Key Issues and Challenges
 Reporting
 communicating what is done in a review.
 communicating the practitioner’s conclusion on
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
to provide assurance.
 managing user expectations.
ISRE 2400
Key Issues and Challenges
 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
audit procedures).
 compilations with specific procedures.
 Development of implementation support - Greater need may
exist in countries where services other than the audit have
not previously been used.
 Development of further guidance.
ISRE 2400
CAVEAT
This 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.