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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.
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.
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.
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:
An auditor must understand the entity and the entity’s environment, together with its internal control and should be able to:
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.
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:
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.
An auditor must acquire the written representation from the management that:
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.
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:
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.
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.
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.
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.