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ISRE 2400 (Revised) was issued in September 2012 and comes into effect for periods ending on or after December 31, 2013. The standard addresses the practitioner’s responsibilities when engaged to perform a review of historical financial statements (when the practitioner is not the auditor of the entity) and the form and content of the practitioner’s report on the financial statements.
The Guide to Review Engagements was published in December 2013 and provides non-authoritative guidance on applying ISRE 2400 (Revised). It is not to be used as a substitute for reading the standard, but rather as a supplement to support consistent implementation of the standard.
Guide to Review Engagements 1. Turkish, IN PROGRESS 2. Estonian 3. Bulgarian 4. Swedish, IN PROGRESS 5. Spanish, IN PROGRESS 6. Polish, IN PROGRESS
SMEs that do not require a statutory audit may still want some degree of independent assurance to increase the credibility of their statements; in which case, a review can be an ideal solution.
A review engagement may be better suited to the needs of some SMEs and place less strain on the client’s time and resources. It also normally costs less than an audit.
[Note. For example, in Denmark many audit exempt organizations are required to have a review engagement instead].
SMP Benefits Through obtaining a detailed understanding the business and its environment the practitioner should be able to use industry knowledge gained from other clients to add value to the client and provide bespoke advice. Undertaking the review engagement onsite will enable the practitioner to effectively communicate with the client, build strong relationships and improve staff efficiency levels. Ensure the client is aware of how and when a review engagement can be used and the value of this being undertaken by a qualified, objective and independent practitioner. A review engagement using ISRE 2400 (Revised): - Consists primarily of inquiry and analysis, allowing practitioners to rely more on their professional judgment and experience rather than detailed substantive testing. - Ensures a consistent work effort on all such engagements.
The Guide addresses the responsibilities of a practitioner (who is not the entity’s auditor) when engaged to perform a compilation of general purpose historical financial statements prepared in compliance with an AFRF and in accordance with the International Standard on Related Services (ISRS) 4410 (Revised).
ISRS 4410 came into effect for compilation engagement reports dated on or after July 1, 2013.
A copy of the Guide may be downloaded free of charge by visiting the IFAC website.
They may also be supplemental in nature (i.e. for interim purposes to supplement an annual review or audit report).
Ensure the client is aware of how and when a compilation engagement can be used (i.e. not appropriate when assurance is required).
Opportunities for cross-selling (i.e. the IESBA ethical requirements of Section 290 and 291, Independence, do not apply to compilation services).
Checklists & forms in the Review Guide include: Client Acceptance/Continuance Checklist (Appendix B) Sample Engagement Letter (Appendix C) Checklist for Understanding the Entity (Appendix D) Examples of Analytical Procedures (Appendix E) Going-Concern Events and Conditions (Appendix F) Sample File Completion Checklist (Appendix G) Example of Written Representations from Management (Appendix H)
Useful appendices included in the compilation guide include: A client acceptance and continuance checklist – this checklist will not only assist the practitioner in meeting ethical and professional standard requirements, but is also in compliance with ISQC 1 requirements The sample engagement letter expands upon the sample that is provided in ISRS 4410 and provides practical practice considerations that are commonly included in engagement correspondence such as ownership of working papers, dispute resolution matters, time and fee inclusions and engagement termination. A file completion checklist is included that will guide firm personnel through the file closing process including completion of procedures, file review, financial statement approval, and ISRS 4410 requirements. Finally, an alternate compilation report is provided that is applicable to an engagement to compile financial information required for a regulatory compliance purpose.
Each of these appendices may be tailored to the circumstance and can be adapted to include the both firm and client specific information.
There are four major elements to a review and compilation engagement. The Guides have been developed around each of these elements and describe each phase of the engagement in detail. This makes the Guides a powerful training tool.
For example, four major elements of a review engagement.
Accepting There should always be a rational (logical) purpose for a client to request a review engagement. A review engagement is typically requested to enhance the degree of confidence that intended users will place on the financial statements. The engagement preconditions are designed to ensure that before any work commences, management understands the full extent of its responsibility for the preparation of the financial statements and for providing the practitioner with access to relevant information and personnel.
Planning Planning involves determining the nature, timing, and extent of the procedures needed to obtain sufficient appropriate evidence for the review engagement. There is a significant emphasis on professional judgment. It is important to fully understand the entity and its environment. Inquiry and analysis is directed to all financial statement areas that exceed materiality and areas where material misstatements are likely to arise (e.g. areas prone to misstatement due to matters such as estimation uncertainty, complexity, or need for judgment).
Performing The review procedures chosen may not be limited to just inquiry and analysis, they could potentially include substantive tests of details and obtaining external confirmations. Additional Procedures are required where the practitioner becomes aware that the financial misstatements may be materially misstated.
Reporting The final step in performing a review engagement is to form an appropriate conclusion (unmodified or modified) based on the evidence obtained. This includes an evaluation of the identified misstatements. Effective and continuous two-way communication between the practitioner, engagement team, management, and those charged with governance is important. This will help minimize any (particularly last-minute) surprises.
Agreed-Upon Procedures (AUP) Engagements: the practitioner provides a report based on factual findings regarding financial information—no assurance is expressed. The report is not distributed publicly—it is restricted to those parties that have agreed to the procedures. The engagement can be based on the IAASB’s ISRS 4400, Engagements to Perform Agreed-Upon Procedures Regarding Financial Information.
Clients may not need an audit, but may greatly benefit from an AUP engagement to satisfy banking or vendor needs (for example, to advance a business transaction, or verify to management that certain financial reporting processes and controls are operating effectively).
Now to AUP – the standard is old and the IAASB, with input from the SMP Committee of Katharine Bagshaw is on the TF, is updating it.
According to ISRS 4400, the objective of an AUP engagement is to carry out procedures of an audit nature to which the practitioner, the entity, and any appropriate third parties have agreed and to report on factual findings. These engagements may entail the practitioner performing certain procedures concerning individual items of financial data (for example, accounts payable, accounts receivable, purchases from related parties, and sales and profits of a segment of an entity), a financial statement (for example, a balance sheet) or even a complete set of financial statements.
For example, the practitioner may be engaged to help the client evaluate the validity of their accounts payable at a certain date. Procedures may comprise: Checking the addition of the trial balance of accounts payable prepared by the client at a specific date and comparing the total to the balance in the related general ledger account. Comparing a list of major suppliers and the amounts owing at a specific date to the related names and amounts in the trial balance. Obtaining suppliers’ statements or requesting suppliers to confirm balances owing at a specific date, and comparing such statements or confirmations to the amounts in the trial balance. For amounts that do not agree, obtaining and reviewing reconciliations from the client.
Growing Your Practice: Review, Compilation and Agreed-Upon Procedures Engagements
Growing Your Practice: Review,
Compilation and Agreed-Upon Procedures
Member, IFAC SMP Committee,
Chair Implementation Guidance Task Force
Guide to Review Engagements
• International Standard on
Review Engagements (ISRE)
• The Guide to Review
Engagements available on
• Translation in progress in
Uses of Review Engagements
Independent credibility to the F/S—attract new
investors, obtain finance.
Provides accountability & confidence to shareholders,
management, partners, government agencies and
regulators, and other stakeholders.
Plan for Success
Enables the business to plan for the future—prepares
growing business for transition to audit or preparing to
SME Benefits of Review Engagements
SME Benefits Commentary
Audit exemptions for small- and medium-sized
entities (SMEs) are becoming more prevalent.
Less time consuming for client.
Lower Cost A review engagement is normally a lower cost for an
entity than an audit.
Limited assurance obtained on the F/S as opposed to
no assurance with a compilation.
SMP Benefits of Review Engagements
SMP Benefits Commentary
Adds value to the client and provide a basis for
Ensure the client is aware of how and when a review
engagement can be used
Deepens relationship with the client
Opportunities for cross-selling
Consists primarily of inquiry and analytical
procedures, allowing practitioners to tailor procedures
based on their professional judgment and experience
• International Standard on
Related Services (ISRS)
• Guide to Compilation
• Published September
New Guide to Compilation Engagements
Uses of Compilation Engagements
Expertise of the practitioner is required by the client to
compile the financial statements but no assurance is required.
Compiled financial statements may be a useful, and ancillary
addition to, other engagements, such as income and cash
flow projections, financial or tax planning services, or taxation
Any number of transaction related purposes may be
supported by a compilation report. For example, a change to
the entity’s ownership or restructured financing (i.e. merger to
SME Benefits of Compilation Engagements
Trend towards higher audit exemptions.
May be less time consuming for client.
A compilation engagement is normally a lower cost for an
entity than an audit or a review engagement.
Accompanying report states expertise in accounting and
financial reporting applied to assist in the preparation and
presentation as well as adherence to relevant ethical
SMP Benefits of Compilation Engagements
SMP Benefits Commentary
Add value to the client and provide a basis for customized
advice. Financial reporting requires judgment, therefore
management may benefit from the assistance of the
practitioner, particularly when making significant
Ensure the client is aware of how and when a compilation
engagement can be used.
Opportunities for cross-selling.
Flexibility Consists of use of records, documents, explanation and
other information provided by management allowing
practitioners to tailor procedures, if any, based on
professional judgment and experience.
Benefits of the Guides
Guide Benefits Commentary
Direct extracts from ISRS 4410 (Revised) and ISRE 2400
Illustrated examples and Consider Points, including
Appendices Checklists, correspondence samples and reports for
Staff Training Day-to-day reference tool for staff – can be used for
Ensure SMP staff develop a consistent approach.
The Four Elements in each Guide
Agreed-Upon Procedure Engagements I
• ISRS 4400, Engagements to Perform Agreed-Upon
Procedures Regarding Financial Information
• Agreed-Upon Procedures (AUP) Engagements
– Report based on factual findings
– No assurance is expressed
– Report is not distributed publicly
• Greater demand due to changing landscape
Agreed-Upon Procedure Engagements II
• Procedures of an audit nature which practitioner, the
entity, and any appropriate third parties have agreed
• Perform procedures on individual items of financial data.
– Accounts receivable/ payable
– Verifying cash balances
– Special reviews of loan portfolios
– Due diligence when buying or selling a business