The purpose of SRE 2400 is to develop standards and offer guidance on the professional responsibilities of a practitioner’s when he/she not being the auditor of the entity, assumes an engagement of reviewing the financial statements and SRE 2400 also prescribes the content and form of a report which practitioner issues following such a review
1. An objective of the Review Engagement
The main purpose of reviewing of financial statement is to allow the practitioner to report whether, based on the procedures which don’t provide that all evidence which is required in the audit, anything has caught his/her attention which causes him/her to believe that financial statements aren’t prepared, in all the material respects, as per the relevant financial reporting framework.
2. General Principles of a Review Engagement
A practitioner must abide by the Code of Ethics which has been issued by ICAI (Institute of Chartered Accountants of India). Ethical principles which govern the professional responsibilities of the practitioner are:
4. Professional competence together with due care
6. Professional behavior
7. Technical standards
The practitioner must conduct a review as per this SRE. A practitioner must plan and execute his/her review with professional skepticism as a part of his/her attitude for recognizing circumstances that may exist causing financial statements to be misstated materially.
For expressing the negative assurance in his/her review report, a practitioner must find appropriate, reasonable and adequate evidence mainly through analytical procedures and inquiry for drawing specific conclusions.
3. The scope of a Review
Here, the scope implies review procedures which are deemed necessary in the circumstances for achieving the objective of such review. The procedures and methods required for conducting the review of financial statements must be determined by a practitioner considering the requirements of the SRE, applicable regulation, legislation, professional bodies and wherever appropriate, the terms of such review engagement and the reporting requirements.
4.Terms of Engagement
The client and practitioner must give their consent to the terms of the engagement. Such agreed terms need to be recorded in the engagement letter or similar other suitable forms.
Matters to be included in the engagement letter:
(a) The objective of the engagement
(b) Responsibilities of the management of the financial statements
(c) The scope of such review, including the reference to SRE 2400
(d) Unlimited access to documentation, records and other information which are requested with respect to the review
(e) The anticipated content and form of the report that would be issued, together with the identity of the addressee of such report
(f) The fact that such engagement should not rely on disclosure of illegal acts, errors, or such other misdeeds
(g) Also, should include a statement that the audit isn’t performed and the audit opinion wouldn’t be expressed or provided. For emphasizing and avoiding confusion, the practitioner may also consider pointing out that such review engagements wouldn’t satisfy statutory or requirements of any third party for an audit
The practitioner must plan his/her work in a way that the execution of the engagement is effective.
When planning the review of the financial statements, a practitioner must obtain or update his/her knowledge of the relevant business that includes understating of the entity’s organization, operating characteristics, accounting systems and nature of its revenues, expenses, assets, and liabilities.
6. Work Performed by Others
When a practitioner uses the work done by another practitioner (s) or expert(s), he/she must be satisfied that the work is acceptable for the purposes of such review.
A practitioner must document the matters that are crucial in providing the evidence to assist his/her review report, and the evidence that such review was carried performed as per this SRE.
8. Procedures and Evidence
A practitioner must use judgment to determine the particular nature, timing as well as the extent of the review procedures. The practitioner would be guided by the matters as follows:
(a) A practitioner must employ same considerations with regarding materiality as in case of providing an audit opinion on financial statements
(b) A practitioner must question and investigate about events following the date of financial statements which might necessitate adjustment or disclosures in financial statements
(c) In case a practitioner has his/her reasons to believe that information subject to review might be materially misstated, he/she must perform more extensive procedures as required for expressing the negative assurance or for confirming that the modified report is needed
9. Conclusions and Reporting
A review report must have an expression of negative assurance written in clear and unambiguous form. The practitioner must assess and review his/her conclusions drawn from evidence obtained by him/her as their basis for expressing the negative assurance.
Depending on the work performed, a practitioner must assess whether the information that is obtained during his/her review point out that financial statements don’t provide a true and fair view as per relevant financial reporting framework.
A report on the review of financial statements defines the scope of the engagement for enabling the reader of such financial statements in understanding the nature of work performed and clarify that the audit has not been performed and, hence, the audit opinion isn’t expressed or provided.
A review report must:
[A] Provide that nothing has caught the attention of the practitioner based on such review which causes him/her to believe financial statements doesn’t provide a true and fair view as per relevant financial reporting framework; or
[B] In case of matters catches the attention of the practitioner, state such matters which damage the true and fair view as per relevant financial reporting framework, which includes, unless unpractical, a quantification of the possible impact on financial statements, and either:
(i) Express the qualification of negative assurance provided; or
(ii) When the impact of such matter is so pervasive and material to financial statements that a practitioner determines that the qualification isn’t adequate for disclosing the incomplete or misleading nature of financial statements, provide an adverse statement that such financial statements don’t provide a true and fair view as per relevant financial reporting framework; or
[C] In case there’s a material limitation with respect to scope, state such limitation and either:
(i) Express the qualification of negative assurance provided with respect to possible adjustments to financial statements which could have been considered to be crucial had such limitation on the scope not existed; or
(ii) When the possible impact of such limitation is so pervasive and significant that a practitioner determines that no level of assurance could be given, not offer any assurance
A practitioner must date his review report as of the date such review is concluded, that includes executing procedures which relates to the events taking place up to date of the report.
However, as the responsibility of the practitioner is to report on financial statements prepared and presented by its management, a practitioner must not date his/her review report prior to the date on which such financial statements were agreed and approved its management.