1. General Principles of a Review of Interim Financial InformationAn 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.
2. An objective of an Engagement to Review Interim Financial InformationThe 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.
3. Agreeing to the Terms of the EngagementThe 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:
i. The extent and nature of an engagement
ii. The scope and objective of such review
iii. The extent of the responsibilities of the auditor
iv. Responsibilities of the management
v. The assurance received
vi. The form and nature of the report
4. Procedures for a Review of Interim Financial Information
I. Understanding the Entity and its Environment, Including its Internal Control
II. Inquiries, Analytical, and Other Review Procedures
I. Understanding the Entity and its Environment, Including its Internal ControlAn auditor must understand the entity and the entity’s environment, together with its internal control and should be able to:
a) Recognize the types of likely material misstatement and determine the chances of their happening
b) 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 frameworkFor 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.
II. 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: a. Enquire with management regarding
i. It’s plans for the future course of actions based on the going concern assessment
ii. The viability of such plans
iii. Whether the management deems that the result of such plans would improve the positionb. 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.
5. Evaluation of MisstatementsAn 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.
6. Management RepresentationsAn auditor must acquire the written representation from the management that:
i. The management acknowledges its responsibility in designing and implementing the internal control for detecting and preventing error and fraud
ii. The preparation and presentation of the interim financial information are as per relevant financial reporting framework
iii. 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
iv. 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
v. 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
vi. 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
vii. 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
7. Auditor’s Responsibility for Accompanying InformationAn 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.
8. CommunicationWhen, 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:
a) Modifying his/her report
b) Withdrawing from such engagement
c) Resigning from such appointment for auditing the annual financial statementsWhen, 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.