SRE 2410 Review Of Interim Financial Information Performed By The Independent Auditor Of The Entity

The purpose SRE 2410 is to form standards and offer guidance on the professional responsibilities of an auditor when he/she assumes any engagement for reviewing the interim financial information of the audit client. The standard also prescribes the content and form of the report.

An auditor engaged to execute a review of the interim financial information must execute the review as per SRE 2410. Let us understand in detail about SRE 2410.

General Principles of a Review of Interim Financial Information

An auditor must comply with all the ethical requirements applicable to the audit of the entity’s annual financial statements. An auditor must ensure that quality control procedures are implemented which are relevant to individual engagement. An auditor must plan and perform his/her review with the professional attitude and scepticism, knowing that conditions might exist which require a material adjustment to the interim financial information.

An objective of an Engagement to Review Interim Financial Information

The aim of such engagement is to allow an auditor in expressing a conclusion whether, on basis of such review, anything grabs the attention of the auditor which causes his/her to believe that interim financial information isn’t prepared, in all the material aspects, as per applicable financial reporting framework. This review engagement doesn’t offer any basis to express an opinion whether such financial information provides a true and fair view, or is fairly presented, in all the material aspects, as per the relevant financial reporting framework.

Agreeing to the Terms of the Engagement

The client and the auditor must agree and align on the engagement terms. These terms are generally recorded in the engagement letter. It helps in avoiding misunderstandings with respect to:

• The extent and nature of an engagement
• The scope and objective of such review
• The extent of the responsibilities of the auditor
• Responsibilities of the management
• The assurance received
• The form and nature of the report

Procedures for a Review of Interim Financial Information

• Understanding the Entity and its Environment, Including its Internal Control
• Inquiries, Analytical, and Other Review Procedures

Understanding the Entity and its Environment, Including its Internal Control

An auditor must understand the entity and the entity’s environment, together with its internal control and should be able to:

• Recognize the types of likely material misstatement and determine the chances of their happening
• Choose the inquiries, analytical and other review procedures which would provide him an appropriate basis to report whether anything caught his attention which requires him to believe that interim financial information isn’t prepared, in all the material aspects, as per relevant financial reporting framework 
   

For planning and conducting the review of interim financial information, the auditor recently appointed and hasn’t yet executed the audit of annual financial statements as per Standards on Auditing, must understand the entity and the entity’s environment, together with its internal control.

Inquiries, Analytical, and Other Review Procedures

An auditor must make inquiries, predominantly of persons who are responsible for accounting and financial matters. He/she must execute analytical and such other review procedures to conclude whether anything has caught his attention which requires him to consider that such interim financial information isn’t prepared, in all the material aspects.

An auditor must acquire evidence that interim financial information reconciles or agrees with the principal accounting records. An auditor must inquire whether management has recognized and identified events till the date of review report which might require disclosure or adjustment in interim financial information. An auditor must investigate whether the management has changed the assessment of the ability of the entity in continuing as the going concern. When, the outcome of such review procedures, an auditor has noteworthy doubt on the ability of entity in continuing as a going concern, an auditor must: 

• Enquire with management regarding
  • It’s plans for the future course of actions based on the going concern assessment
  • The viability of such plans
  • Whether the management deems that the result of such plans would improve the position
• Determine the sufficiency of disclosure of such matters in interim financial information When any matter catches the attention of the auditor which leads the auditor in questioning whether any material adjustment is required to be made for the interim financial information, an auditor must perform additional inquiries or other procedures for expressing a conclusion in his/her review report.

Evaluation of Misstatements

An auditor must evaluate and assess, in aggregate and individually, whether the uncorrected misstatements which have caught the attention of the auditor are substantial to interim financial information.

Management Representations

An auditor must acquire the written representation from the management that:

• The management acknowledges its responsibility in designing and implementing the internal control for detecting and preventing error and fraud
• The preparation and presentation of the interim financial information are as per relevant financial reporting framework
• The management believes that the impact of such uncorrected misstatements gathered by the auditor in the course of his/her review is irrelevant, individually as well in aggregate, to such interim financial information
• The management has disclosed all the significant facts to the auditor relating to a fraud or suspected fraud known to it which might have impacted the entity
• The management has disclosed the results of the assessment to the auditor with respect to risks that such interim financial information might be misstated materially due to fraud
• It has disclosed to the auditor all known actual or possible noncompliance with laws and regulations whose effects are to be considered when preparing the interim financial information
• Management has disclosed all significant events to the auditor which have occurred following the balance sheet date and over the date of review report which might necessitate disclosure or adjustment to in interim financial information

Auditor’s Responsibility for Accompanying Information

An auditor must go through other information which accompanies interim financial information for determining whether the information is substantially inconsistent with interim financial information. In case a matter catches the attention of the auditor which requires such auditor to consider that other information seems to comprise any material misstatement of fact, such auditor must discuss the same with the management of the entity.

Communication

When, due to the execution of such review, a matter catches the attention of the auditor which requires him to consider that it’s essential for making a substantial adjustment for preparation of interim financial information, he must communicate the same to the proper level of management at the earliest. When, in the judgment of the auditor, management doesn’t appropriately answer within a sensible time frame, the auditor must inform persons charged with the governance. When, in the judgment of the auditor, persons charged with the governance doesn’t appropriately respond within a sensible time frame, the auditor must think of:

• Modifying his/her report
• Withdrawing from such engagement
• Resigning from such appointment for auditing the annual financial statements

When, due to the execution of such review, a matter catches the attention of the auditor which requires him to consider the presence of noncompliance or fraud by the entity with respect to regulations and laws, he must communicate the same to the proper level of management at the earliest. An auditor must communicate all the pertinent matters of governance interest which have arisen from such review to persons charged with governance.

Departure from the Applicable Financial Reporting Framework

An auditor must express an adverse or qualified conclusion when any matter catches the attention of auditor which causes the auditor to consider that the material adjustment to interim financial information must be made for its preparation.

Limitation on Scope

When an auditor isn’t able to finish his/her review, the auditor must communicate the same, in writing, to the proper level of management and to persons charged with the governance the intentions and reason for the same, and determine whether it’s suitable for issuing a report.

Documentation

An auditor must prepare the review documentation which is appropriate and adequate in providing a basis for his/her conclusion and for providing evidence that such review was executed as per SRE 2410 and relevant regulatory and legal requirements.