SRE 2400 Review
SRE 2400(Revised)
Engagements to Review Historical
Financial Statements
(Effective for reviews of financial statements for periods
beginning on or after April 1, 2016)
Contents
Paragraph(s)
Introduction
Scope of this SRE .................................................................................. 1-4
The Engagement to Review Historical Financial Statements ... ............ 5-8
Authority of this SRE ... ........................................................................ 9-12
Effective Date ... ...................................................................................... 13
Objectives ... ..................................................................................... 14-15
Definitions ... ..................................................................................... 16-17
Requirements
Conduct of a Review Engagement in Accordance with this SRE ... .. 18-20
Ethical Requirements ... .......................................................................... 21
Professional Skepticism and Professional Judgment ... .................... 22-23
Engagement Level Quality Control ... ................................................ 24-28
Acceptance and Continuance of Client Relationships and
Review Engagements ... .................................................................... 29-41
Communication with Management and Those Charged
with Governance .................................................................................... 42
Performing the Engagement ... .......................................................... 43-57
Subsequent Events ... ........................................................................ 58-60
Written Representations ... ................................................................ 61-65
Evaluating Evidence Obtained from the Procedures Performed ... ... 66-68
Forming the Practitioner’s Conclusion on the Financial Statements . 69-85
The Practitioner’s Report ... ............................................................... 86-92
Documentation ... ............................................................................... 93-96
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Application and Other Explanatory Material
Scope of this SRE ... ......................................................................... A1-A4
The Engagement to Review Historical Financial Statements ... ....... A5-A6
Objectives ... ..................................................................................... A7-A9
Definitions ... ................................................................................. A10-A12
Conduct of a Review Engagement in Accordance with this SRE ... ..... A13
Ethical Requirements ... ................................................................ A14-A15
Professional Skepticism and Professional Judgment ... ............... A16-A24
Engagement Level Quality Control ... ........................................... A25-A32
Acceptance and Continuance of Client Relationships and
Review Engagements ... ............................................................... A33-A61
Communication with Management and Those Charged with
Governance ... ............................................................................... A62-A68
Performing the Engagement ... ..................................................... A69-A98
Written Representations ... ......................................................... A99-A101
Evaluating Evidence Obtained from the Procedures
Performed ... ............................................................................. A102-A104
Forming the Practitioner’s Conclusion on the
Financial Statements ... ............................................................ A105-A116
The Practitioner’s Report ... ...................................................... A117-A143
Documentation ... ................................................................................A144
Material Modifications vis-a-vis ISRE 2400 (Revised), “Engagements to
Review Historical Financial Statements”
Appendix 1: Illustrative Engagement Letter for an Engagement to Review
Historical Financial Statements
Appendix 2: Illustrative Practitioners’ Review Reports
Standard on Review Engagements (SRE) 2400 (Revised), Engagements
to Review Historical Financial Statements, should be read in conjunction
with the Preface to the Standards on Quality Control, Auditing, Review,
Other Assurance, and Related Services.
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Introduction
Scope of this SRE
1. This Standard on Review Engagements (SRE) deals with: (Ref: Para. A1)
(a) The practitioner’s responsibilities when engaged to perform a review of
historical financial statements, when the practitioner is not the auditor of the
entity’s financial statements; and
(b) The form and content of the practitioner’s report on the financial
statements.
2. This SRE does not address a review of an entity’s financial statements or
interim financial information performed by a practitioner who is the independent
auditor of the entity’s financial statements. (Ref: Para. A2)
3. This SRE is to be applied, adapted as necessary, to reviews of other
historical financial information.
Relationship with SQC 11
4. Quality control systems, policies and procedures are the responsibility of
the firm. SQC 1 applies to firms of professional accountants in respect of a firm’s
engagements to review financial statements.2 The provisions of this SRE
regarding quality control at the level of individual review engagements are
premised on the basis that the firm is subject to SQC 1. (Ref: Para. A3-A4)
The Engagement to Review Historical Financial Statements
5. The review of historical financial statements is a limited assurance
engagement, as described in the Framework for Assurance Engagements.3 (Ref:
Para. A5-A6)
6. In a review of financial statements, the practitioner expresses a conclusion
that is designed to enhance the degree of confidence of intended users
regarding the preparation of an entity’s financial statements in accordance with
an applicable financial reporting framework. The practitioner’s conclusion is
based on the practitioner obtaining limited assurance. The practitioner’s report
includes a description of the nature of a review engagement as context for the
readers of the report to be able to understand the conclusion.
7. The practitioner performs primarily inquiry and analytical procedures to
1 Standard on Quality Control (SQC) 1, Quality Control for Firms that Perform Audits and Reviews
of Historical Financial Information, and Other Assurance and Related Services Engagements.
2 SQC 1, paragraph 5.
3 Framework for Assurance Engagements, Paragraphs 6 and 10.
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obtain sufficient appropriate evidence as the basis for a conclusion on the
financial statements as a whole, expressed in accordance with the requirements
of this SRE.
8. If the practitioner becomes aware of a matter that causes the practitioner to
believe the financial statements may be materially misstated, the practitioner
designs and performs additional procedures, as the practitioner considers
necessary in the circumstances, to be able to conclude on the financial
statements in accordance with this SRE.
Authority of this SRE
9. This SRE contains the objectives of the practitioner in following the SRE
which provide the context in which the requirements of this SRE are set, and are
intended to assist the practitioner in understanding what needs to be
accomplished in a review engagement.
10. The SRE contains requirements, expressed using “shall,” that are designed
to enable the practitioner to meet the stated objectives.
11. In addition, this SRE contains introductory material, definitions, and
application and other explanatory material, that provide context relevant to a
proper understanding of the SRE.
12. The application and other explanatory material provides further explanation
of the requirements and guidance for carrying them out. While such guidance
does not itself impose a requirement, it is relevant to the proper application of the
requirements. The application and other explanatory material may also provide
background information on matters addressed in this SRE that assists in the
application of the requirements.
Effective Date
13. This SRE is effective for reviews of financial statements for periods
beginning on or after April 1, 2016.
Objectives
14. The practitioner’s objectives in a review of financial statements under this
SRE are to:
(a) Obtain limited assurance, primarily by performing inquiry and analytical
procedures, about whether the financial statements as a whole are free
from material misstatement, thereby enabling the practitioner to express a
conclusion on whether anything has come to the practitioner’s attention that
causes the practitioner to believe the financial statements are not prepared,
in all material respects, in accordance with an applicable financial reporting
framework; and
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(b) Report on the financial statements as a whole and communicate, as
required by this SRE.
15. In all cases when limited assurance cannot be obtained and a qualified
conclusion in the practitioner’s report is insufficient in the circumstances, this
SRE requires that the practitioner either disclaim a conclusion in the report
issued for the engagement or, where appropriate, withdraw from the engagement
if withdrawal is possible under applicable law or regulation. (Ref. Para. A7-A9,
A114-A115)
Definitions
16. The Glossary of Terms issued by the ICAI4 (“the Glossary”) includes the
terms defined in this SRE as well as descriptions of other terms used in this
SRE, to assist in consistent application and interpretation. For example, the
terms “management” and “those charged with governance” used throughout this
SRE are as defined in the Glossary. (Ref: Para. A10-A11)
17. For purposes of this SRE, the following terms have the meanings attributed
below:
(a) Analytical procedures ― Evaluations of financial information through
analysis of plausible relationships among both financial and non-financial
data. Analytical procedures also encompass such investigation as is
necessary of identified fluctuations or relationships that are inconsistent
with other relevant information or that differ from expected values by a
significant amount.
(b) Engagement risk ― The risk that the practitioner expresses an
inappropriate conclusion when the financial statements are materially
misstated.
(c) General purpose financial statements ― Financial statements prepared in
accordance with a general purpose framework.
(d) General purpose framework ― A financial reporting framework designed to
meet the common financial information needs of a wide range of users. The
financial reporting framework may be a fair presentation framework or a
compliance framework.
(e) Inquiry ― Inquiry consists of seeking information of knowledgeable
persons, both financial and non-financial, within the entity or outside the
entity.
(f) Limited assurance ― The level of assurance obtained where engagement
4 The Glossary of Terms relating to Standards issued by the ICAI is contained in the Handbook
of Auditing Pronouncements published by the ICAI.
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risk is reduced to a level that is acceptable in the circumstances of the
engagement, but where that risk is greater than for a reasonable assurance
engagement, as the basis for expressing a conclusion in accordance with
this SRE. The combination of the nature, timing and extent of evidence
gathering procedures is at least sufficient for the practitioner to obtain a
meaningful level of assurance. To be meaningful, the level of assurance
obtained by the practitioner is likely to enhance the intended users’
confidence about the financial statements.5 (Ref: Para. A12)
(g) Practitioner ― A professional accountant in public practice. The term
includes the engagement partner or other members of the engagement
team, or, as applicable, the firm. Where this SRE expressly intends that a
requirement or responsibility be fulfilled by the engagement partner, the
term “engagement partner” rather than “practitioner” is used.
(h) Professional judgment ― The application of relevant training, knowledge
and experience, within the context provided by assurance, accounting and
ethical standards, in making informed decisions about the courses of action
that are appropriate in the circumstances of the review engagement.
(i) Relevant ethical requirements ― Ethical requirements to which the
engagement team is subject, which ordinarily comprise the Code of Ethics
issued by the Institute of Chartered Accountants of India (ICAI) together
with other relevant pronouncements issued by the ICAI.
(j) Special purpose financial statements ― Financial statements prepared in
accordance with a special purpose framework.
(k) Special purpose framework ― A financial reporting framework designed to
meet the financial information needs of specific users. The financial
reporting framework may be a fair presentation framework or a compliance
framework.
Requirements
Conduct of a Review Engagement in Accordance with this SRE
18. The practitioner shall have an understanding of the entire text of this SRE,
including its application and other explanatory material, to understand its
objectives and to apply its requirements properly. (Ref: Para. A13)
Complying with Relevant Requirements
19. The practitioner shall comply with each requirement of this SRE, unless a
requirement is not relevant to the review engagement. A requirement is relevant
5 Attention is also drawn to paragraph 10 of the Framework for Assurance Engagements, issued by
ICAI.
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to the review engagement when the circumstances addressed by the
requirement exist.
20. The practitioner shall not represent compliance with this SRE in the
practitioner’s report unless the practitioner has complied with all the requirements
of this SRE relevant to the review engagement.
Ethical Requirements
21. The practitioner shall comply with relevant ethical requirements, including
those pertaining to independence. (Ref: Para. A14-A15)
Professional Skepticism and Professional Judgment
22. The practitioner shall plan and perform the engagement with professional
skepticism recognizing that circumstances may exist that cause the financial
statements to be materially misstated. (Ref: Para. A16-A19)
23. The practitioner shall exercise professional judgment in conducting a review
engagement. (Ref: Para. A20-A24)
Engagement Level Quality Control
24. The engagement partner shall possess competence in assurance skills and
techniques, and competence in financial reporting, appropriate to the
engagement circumstances. (Ref: Para. A25)
25. The engagement partner shall take responsibility for: (Ref: Para. A26-A29)
(a) The overall quality of each review engagement to which that partner is
assigned;
(b) The direction, supervision, planning and performance of the review
engagement in compliance with professional standards and applicable legal
and regulatory requirements; (Ref: Para. A30)
(c) The practitioner’s report being appropriate in the circumstances; and
(d) The engagement being performed in accordance with the firm’s quality
control policies, including the following:
(i) Being satisfied that appropriate procedures regarding the acceptance
and continuance of client relationships and engagements have been
followed, and that conclusions reached are appropriate, including
considering whether there is information that would lead the
engagement partner to conclude that management lacks integrity;
(Ref: Para. A31-A32)
(ii) Being satisfied that the engagement team collectively has the
appropriate competence and capabilities, including assurance skills
and techniques and expertise in financial reporting, to:
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a. Perform the review engagement in accordance with professional
standards and applicable legal and regulatory requirements; and
b. Enable a report that is appropriate in the circumstances to be
issued; and
(iii) Taking responsibility for appropriate engagement documentation
being maintained.
Relevant Considerations after Engagement Acceptance
26. If the engagement partner obtains information that would have caused the
firm to decline the engagement had that information been available earlier, the
engagement partner shall communicate that information promptly to the firm, so
that the firm and the engagement partner can take the necessary action.
Compliance with Relevant Ethical Requirements
27. Throughout the engagement, the engagement partner shall remain alert,
through observation and making inquiries as necessary, for evidence of non-
compliance with relevant ethical requirements by members of the engagement
team. If matters come to the engagement partner’s attention through the firm’s
system of quality control or otherwise that indicate that members of the
engagement team have not complied with relevant ethical requirements, the
engagement partner, in consultation with others in the firm, shall determine the
appropriate action.
Monitoring
28. An effective system of quality control for a firm includes a monitoring
process designed to provide the firm with reasonable assurance that the firm’s
policies and procedures relating to the system of quality control are relevant,
adequate and operate effectively. The engagement partner shall consider the
results of the firm’s monitoring process as evidenced in the latest information
circulated by the firm and, if applicable, other network firms and whether
deficiencies noted in that information may affect the review engagement.
Acceptance and Continuance of Client Relationships and Review
Engagements
Factors Affecting Acceptance and Continuance of Client Relationships and
Review Engagements
29. Unless required by law or regulation, the practitioner shall not accept a
review engagement if: (Ref: Para. A33-A34)
(a) The practitioner is not satisfied:
(i) That there is a rational purpose for the engagement; or (Ref: Para.
A35)
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(ii) That a review engagement would be appropriate in the
circumstances; (Ref: Para. A36)
(b) The practitioner has reason to believe that relevant ethical requirements,
including independence, will not be satisfied;
(c) The practitioner’s preliminary understanding of the engagement
circumstances indicates that information needed to perform the review
engagement is likely to be unavailable or unreliable; (Ref: Para. A37)
(d) The practitioner has cause to doubt management’s integrity such that it is
likely to affect proper performance of the review; or (Ref: Para. A36)
(e) Management or those charged with governance impose a limitation on the
scope of the practitioner’s work in the terms of a proposed review
engagement such that the practitioner believes the limitation will result in
the practitioner disclaiming a conclusion on the financial statements.
Preconditions for Accepting a Review Engagement
30. Prior to accepting a review engagement, the practitioner shall: (Ref: Para.
A38)
(a) Determine whether the financial reporting framework applied in the
preparation of the financial statements is acceptable including, in the case
of special purpose financial statements, obtaining an understanding of the
purpose for which the financial statements are prepared and of the
intended users; and (Ref: Para. A39-A45)
(b) Obtain the agreement of management that it acknowledges and
understands its responsibilities: (Ref: Para. A46-A49)
(i) For preparation of the financial statements in accordance with the
applicable financial reporting framework, including, where relevant,
their fair presentation;
(ii) For such internal control as management determines is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; and
(iii) To provide the practitioner with:
a. Access to all information of which management is aware that is
relevant to the preparation of the financial statements, such as
records, documentation and other matters;
b. Additional information that the practitioner may request from
management for the purpose of the review; and
c. Unrestricted access to persons within the entity from whom the
practitioner determines it necessary to obtain evidence.
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31. If the practitioner is not satisfied as to any of the matters set out above as
preconditions for accepting a review engagement, the practitioner shall discuss
the matter with management or those charged with governance. If changes
cannot be made to satisfy the practitioner as to those matters, the practitioner
shall not accept the proposed engagement unless required by law or regulation
to do so. However, an engagement conducted under such circumstances does
not comply with this SRE. Accordingly, the practitioner shall not include any
reference within the practitioner’s report to the review having been conducted in
accordance with this SRE.
32. If it is discovered after the engagement has been accepted that the
practitioner is not satisfied as to any of the above preconditions, the practitioner
shall discuss the matter with management or those charged with governance,
and shall determine:
(a) Whether the matter can be resolved;
(b) Whether it is appropriate to continue with the engagement; and
(c) Whether and, if so, how to communicate the matter in the practitioner’s
report.
Additional Considerations When the Wording of the Practitioner’s Report Is
Prescribed by Law or Regulation
33. The practitioner’s report issued for the review engagement shall refer to this
SRE only if the report complies with the requirements of paragraph 86.
34. In some cases, when the review is performed pursuant to the specific law
or regulation applicable to the entity, such law or regulation may prescribe the
layout or wording of the practitioner’s report in a form or in terms that are
significantly different from the requirements of this SRE. In those circumstances,
the practitioner shall evaluate whether users might misunderstand the assurance
obtained from the review of the financial statements and, if so, whether additional
explanation in the practitioner’s report can mitigate possible misunderstanding.
(Ref: Para. A50, A141)
35. If the practitioner concludes that additional explanation in the practitioner’s
report cannot mitigate possible misunderstanding, the practitioner shall not
accept the review engagement unless required by law or regulation to do so. A
review conducted in accordance with such law or regulation does not comply
with this SRE. Accordingly, the practitioner shall not include any reference within
the practitioner’s report to the review having been conducted in accordance with
this SRE. (Ref: Para. A50, A141)
Agreeing the Terms of Engagement
36. The practitioner shall agree the terms of the engagement with management
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or those charged with governance, as appropriate, prior to performing the
engagement.
37. The agreed terms of engagement shall be recorded in an engagement
letter or other suitable form of written agreement, and shall include: (Ref: Para.
A51-A53, A55)
(a) The intended use and distribution of the financial statements, and any
restrictions on use or distribution where applicable;
(b) Identification of the applicable financial reporting framework;
(c) The objective and scope of the review engagement;
(d) The responsibilities of the practitioner;
(e) The responsibilities of management, including those in paragraph 30(b);
(Ref: Para. A46-A49, A54)
(f) A statement that the engagement is not an audit, and that the practitioner
will not express an audit opinion on the financial statements; and
(g) Reference to the expected form and content of the report to be issued by
the practitioner, and a statement that there may be circumstances in which
the report may differ from its expected form and content.
Recurring Engagements
38. On recurring review engagements, the practitioner shall evaluate whether
circumstances, including changes in the engagement acceptance considerations,
require the terms of engagement to be revised and whether there is a need to
remind management or those charged with governance, as appropriate, of the
existing terms of engagement. (Ref: Para. A56)
Acceptance of a Change in the Terms of the Review Engagement
39. The practitioner shall not agree to a change in the terms of the engagement
where there is no reasonable justification for doing so. (Ref: Para. A57-A59)
40. If, prior to completing the review engagement, the practitioner is requested
to change the engagement to an engagement for which no assurance is
obtained, the practitioner shall determine whether there is reasonable justification
for doing so. (Ref: Para. A60-A61)
41. If the terms of engagement are changed during the course of the
engagement, the practitioner and management or those charged with
governance, as appropriate, shall agree on and record the new terms of the
engagement in an engagement letter or other suitable form of written agreement.
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Communication with Management and Those Charged with
Governance
42. The practitioner shall communicate with management or those charged with
governance, as appropriate, on a timely basis during the course of the review
engagement, all matters concerning the review engagement that, in the
practitioner’s professional judgment, are of sufficient importance to merit the
attention of management or those charged with governance, as appropriate.
(Ref: Para. A62-A68)
Performing the Engagement
Materiality in a Review of Financial Statements
43. The practitioner shall determine materiality for the financial statements as a
whole, and apply this materiality in designing the procedures and in evaluating
the results obtained from those procedures. (Ref: Para. A69-A72)
44. The practitioner shall revise materiality for the financial statements as a
whole in the event of becoming aware of information during the review that would
have caused the practitioner to have determined a different amount initially. (Ref.
Para. A73)
The Practitioner’s Understanding
45. The practitioner shall obtain an understanding of the entity and its
environment, and the applicable financial reporting framework, to identify areas
in the financial statements where material misstatements are likely to arise and
thereby provide a basis for designing procedures to address those areas. (Ref:
Para. A74-A76)
46. The practitioner’s understanding shall include the following: (Ref: Para.
A77, A86, A88)
(a) Relevant industry, regulatory, and other external factors including the
applicable financial reporting framework;
(b) The nature of the entity, including:
(i) Its operations;
(ii) Its ownership and governance structure;
(iii) The types of investments that the entity is making and plans to make;
(iv) The way that the entity is structured and how it is financed; and
(v) The entity’s objectives and strategies;
(c) The entity’s accounting systems and accounting records; and
(d) The entity’s selection and application of accounting policies.
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Designing and Performing Procedures
47. In obtaining sufficient appropriate evidence as the basis for a conclusion on
the financial statements as a whole, the practitioner shall design and perform
inquiry and analytical procedures: (Ref: Para. A78-A82, A86, A88)
(a) To address all material items in the financial statements, including
disclosures; and
(b) To focus on addressing areas in the financial statements where material
misstatements are likely to arise.
48. The practitioner’s inquiries of management and others within the entity, as
appropriate, shall include the following: (Ref: Para. A83-A86)
(a) How management makes the significant accounting estimates required
under the applicable financial reporting framework;
(b) The identification of related parties and related party transactions, including
the purpose of those transactions;
(c) Whether there are significant, unusual or complex transactions, events or
matters that have affected or may affect the entity’s financial statements,
including:
(i) Significant changes in the entity’s business activities or operations;
(ii) Significant changes to the terms of contracts that materially affect the
entity’s financial statements, including terms of finance and debt
contracts or covenants;
(iii) Significant journal entries or other adjustments to the financial
statements;
(iv) Significant transactions occurring or recognized near the end of the
reporting period;
(v) The status of any uncorrected misstatements identified during
previous engagements; and
(vi) Effects or possible implications for the entity of transactions or
relationships with related parties;
(d) The existence of any actual, suspected or alleged:
(i) Fraud or illegal acts affecting the entity; and
(ii) Non-compliance with provisions of laws and regulations that are
generally recognized to have a direct effect on the determination of
material amounts and disclosures in the financial statements, such as
tax and pension laws and regulations;
(e) Whether management has identified and addressed events occurring
between the date of the financial statements and the date of the
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practitioner’s report that require adjustment of, or disclosure in, the financial
statements;
(f) The basis for management’s assessment of the entity’s ability to continue
as a going concern; (Ref: Para. A87)
(g) Whether there are events or conditions that appear to cast doubt on the
entity’s ability to continue as a going concern;
(h) Material commitments, contractual obligations or contingencies that have
affected or may affect the entity’s financial statements, including
disclosures; and
(i) Material non-monetary transactions or transactions for no consideration in
the financial reporting period under consideration.
49. In designing analytical procedures, the practitioner shall consider whether
the data from the entity’s accounting system and accounting records are
adequate for the purpose of performing the analytical procedures. (Ref: Para.
A88-A90)
Procedures to Address Specific Circumstances
Related Parties6
50. During the review, the practitioner shall remain alert for arrangements or
information that may indicate the existence of related party relationships or
transactions that management has not previously identified or disclosed to the
practitioner.
51. If the practitioner identifies significant transactions outside the entity’s
normal course of business in the course of performing the review, the practitioner
shall inquire of management about:
(a) The nature of those transactions;
(b) Whether related parties could be involved; and
(c) The business rationale (or lack thereof) of those transactions.
Fraud and non-compliance with laws or regulations
52. When there is an indication that fraud or non-compliance with laws or
regulations, or suspected fraud or non-compliance with laws or regulations, has
occurred in the entity, the practitioner shall:
(a) Communicate that matter to the appropriate level of senior management or
those charged with governance as appropriate;
(b) Request management’s assessment of the effect(s), if any, on the financial
statements;
6 As defined in the “Glossary of Terms” contained in Volume I.A of the Handbook of Auditing
Pronouncements.
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(c) Consider the effect, if any, of management’s assessment of the effects of
fraud or non-compliance with laws or regulations communicated to the
practitioner on the practitioner’s conclusion on the financial statements and
on the practitioner’s report; and
(d) Determine whether there is a responsibility to report the occurrence or
suspicion of fraud or illegal acts to a party outside the entity. (Ref: Para.
A91)
Going concern
53. A review of financial statements includes consideration of the entity’s ability
to continue as a going concern. In considering management’s assessment of the
entity’s ability to continue as a going concern, the practitioner shall cover the
same period as that used by management to make its assessment as required
by the applicable financial reporting framework, or by law or regulation where a
longer period is specified.
54. If, during the performance of the review, the practitioner becomes aware of
events or conditions that may cast significant doubt about the entity’s ability to
continue as a going concern, the practitioner shall: (Ref: Para. A92)
(a) Inquire of management about plans for future actions affecting the entity’s
ability to continue as a going concern and about the feasibility of those
plans, and also whether management believes the outcome of those plans
will improve the situation regarding the entity’s ability to continue as a going
concern;
(b) Evaluate the results of those inquiries, to consider whether management’s
responses provide a sufficient basis to:
(i) Continue to present the financial statements on the going concern
basis if the applicable financial reporting framework includes the
assumption of an entity’s continuance as a going concern; or
(ii) Conclude whether the financial statements are materially misstated, or
are otherwise misleading regarding the entity’s ability to continue as a
going concern; and
(c) Consider management’s responses in light of all relevant information of
which the practitioner is aware as a result of the review.
Use of work performed by others
55. In performing the review, it may be necessary for the practitioner to use
work performed by other practitioners, or the work of an individual or organization
possessing expertise in a field other than accounting or assurance. If the
practitioner uses work performed by another practitioner or an expert in the
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course of performing the review, the practitioner shall take appropriate steps to
be satisfied that the work performed is adequate for the practitioner’s purposes.
(Ref: Para. A79)
Reconciling the Financial Statements to the Underlying Accounting
Records
56. The practitioner shall obtain evidence that the financial statements agree
with, or reconcile to, the entity’s underlying accounting records. (Ref: Para. A93)
Additional Procedures When the Practitioner Becomes Aware that the
Financial Statements May Be Materially Misstated
57. If the practitioner becomes aware of a matter(s) that causes the practitioner
to believe the financial statements may be materially misstated, the practitioner
shall design and perform additional procedures sufficient to enable the
practitioner to: (Ref: Para. A94-A98)
(a) Conclude that the matter(s) is not likely to cause the financial statements as
a whole to be materially misstated; or
(b) Determine that the matter(s) causes the financial statements as a whole to
be materially misstated.
Subsequent Events
58. If the practitioner becomes aware of events occurring between the date of
the financial statements and the date of the practitioner’s report that require
adjustment of, or disclosure in, the financial statements, the practitioner shall
request management to correct those misstatements.
59. The practitioner has no obligation to perform any procedures regarding the
financial statements after the date of the practitioner’s report. However, if, after
the date of the practitioner’s report but before the date the financial statements
are issued, a fact becomes known to the practitioner that, had it been known to
the practitioner at the date of the practitioner’s report, may have caused the
practitioner to amend the report, the practitioner shall:
(a) Discuss the matter with management or those charged with governance, as
appropriate;
(b) Determine whether the financial statements need amendment; and
(c) If so, inquire how management intends to address the matter in the
financial statements.
60. If management does not amend the financial statements in circumstances
where the practitioner believes they need to be amended, and the practitioner’s
report has already been provided to the entity, the practitioner shall notify
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management and those charged with governance not to issue the financial
statements to third parties before the necessary amendments have been made.
If the financial statements are nevertheless subsequently issued without the
necessary amendments, the practitioner shall take appropriate action to seek to
prevent reliance on the practitioner’s report.
Written Representations
61. The practitioner shall request management to provide a written
representation that management has fulfilled its responsibilities described in the
agreed terms of engagement. The written representation shall include that: (Ref:
Para. A99-A101)
(a) Management has fulfilled its responsibility for the preparation of financial
statements in accordance with the applicable financial reporting framework,
including where relevant their fair presentation, and has provided the
practitioner with all relevant information and access to information as
agreed in the terms of the engagement; and
(b) All transactions have been recorded and are reflected in the financial
statements. If law or regulation requires management to make written
public statements about its responsibilities, and the practitioner determines
that such statements provide some or all of the representations required by
subparagraphs (a)-(b), the relevant matters covered by such statements
need not be included in the written representation.
62. The practitioner shall also request management’s written representations
that management has disclosed to the practitioner: (Ref: Para. A100)
(a) The identity of the entity’s related parties and all the related party
relationships and transactions of which management is aware;
(b) Significant facts relating to any frauds or suspected frauds known to
management that may have affected the entity;
(c) Known actual or possible non-compliance with laws and regulations for
which the effects of non-compliance affect the entity’s financial statements;
(d) All information relevant to use of the going concern assumption in the
financial statements;
(e) That all events occurring subsequent to the date of the financial statements
and for which the applicable financial reporting framework requires
adjustment or disclosure, have been adjusted or disclosed;
(f) Material commitments, contractual obligations or contingencies that have
affected or may affect the entity’s financial statements, including
disclosures; and
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(g) Material non-monetary transactions or transactions for no consideration
undertaken by the entity in the financial reporting period under
consideration.
63. If management does not provide one or more of the requested written
representations, the practitioner shall: (Ref: Para. A99)
(a) Discuss the matter with management and those charged with governance,
as appropriate;
(b) Re-evaluate the integrity of management, and evaluate the effect that this
may have on the reliability of representations (oral or written) and evidence
in general; and
(c) Take appropriate actions, including determining the possible effect on the
conclusion in the practitioner’s report in accordance with this SRE.
64. The practitioner shall disclaim a conclusion on the financial statements, or
withdraw from the engagement if withdrawal is possible under applicable law or
regulation, as appropriate, if:
(a) The practitioner concludes that there is sufficient doubt about the integrity
of management such that the written representations are not reliable; or
(b) Management does not provide the required representations required by
paragraph 61.
Date of and Period(s) Covered by Written Representations
65. The date of the written representations shall be as near as practicable to,
but not after, the date of the practitioner’s report. The written representations
shall be for all financial statements and period(s) referred to in the practitioner’s
report.
Evaluating Evidence Obtained from the Procedures Performed
66. The practitioner shall evaluate whether sufficient appropriate evidence has
been obtained from the procedures performed and, if not, the practitioner shall
perform other procedures judged by the practitioner to be necessary in the
circumstances to be able to form a conclusion on the financial statements. (Ref:
Para. A102)
67. If the practitioner is not able to obtain sufficient appropriate evidence to
form a conclusion, the practitioner shall discuss with management and those
charged with governance, as appropriate, the effects such limitations have on the
scope of the review. (Ref: Para. A103-A104)
Evaluating the Effect on the Practitioner’s Report
68. The practitioner shall evaluate the evidence obtained from the procedures
performed to determine the effect on the practitioner’s report. (Ref: Para. A102)
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Forming the Practitioner’s Conclusion on the Financial Statements
Consideration of the Applicable Financial Reporting Framework in Relation
to the Financial Statements
69. In forming the conclusion on the financial statements, the practitioner shall:
(a) Evaluate whether the financial statements adequately refer to or describe
the applicable financial reporting framework; (Ref: Para. A105-A106)
(b) Consider whether, in the context of the requirements of the applicable
financial reporting framework and the results of procedures performed:
(i) The terminology used in the financial statements, including the title of
each financial statement, is appropriate;
(ii) The financial statements adequately disclose the significant
accounting policies selected and applied;
(iii) The accounting policies selected and applied are consistent with the
applicable financial reporting framework and are appropriate;
(iv) Accounting estimates made by management appear reasonable;
(v) The information presented in the financial statements appears
relevant, reliable, comparable, and understandable; and
(vi) The financial statements provide adequate disclosures to enable the
intended users to understand the effects of material transactions and
events on the information conveyed in the financial statements. (Ref:
Para. A107-A109)
70. The practitioner shall consider the impact of:
(a) Uncorrected misstatements identified during the review, and in the previous
year’s review of the entity’s financial statements, on the financial
statements as a whole; and
(b) Qualitative aspects of the entity’s accounting practices, including indicators
of possible bias in management’s judgments. (Ref: Para. A110-A111)
71. If the financial statements are prepared using a fair presentation framework,
the practitioner’s consideration shall also include: (Ref: Para. A108)
(a) The overall presentation, structure and content of the financial statements
in accordance with the applicable framework; and
(b) Whether the financial statements, including the related notes, appear to
represent the underlying transactions and events in a manner that achieves
fair presentation or gives a true and fair view, as appropriate, in the context
of the financial statements as a whole.
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Form of the Conclusion
72. The practitioner’s conclusion on the financial statements, whether
unmodified or modified, shall be expressed in the appropriate form in the context
of the financial reporting framework applied in the financial statements.
Unmodified Conclusion
73. The practitioner shall express an unmodified conclusion in the practitioner’s
report on the financial statements as a whole when the practitioner has obtained
limited assurance to be able to conclude that nothing has come to the
practitioner’s attention that causes the practitioner to believe that the financial
statements are not prepared, in all material respects, in accordance with the
applicable financial reporting framework.
74. When the practitioner expresses an unmodified conclusion, the practitioner
shall, unless otherwise required by law or regulation, use one of the following
phrases, as appropriate: (Ref: Para. A112-A113)
(a) “Based on our review, nothing has come to our attention that causes us to
believe that the financial statements do not give a true and fair view (or do
not present fairly, in all material respects), in accordance with the applicable
financial reporting framework,” (for financial statements prepared using a
fair presentation framework); or
(b) “Based on our review, nothing has come to our attention that causes us to
believe that the financial statements are not prepared, in all material
respects, in accordance with the applicable financial reporting framework,”
(for financial statements prepared using a compliance framework).
Modified Conclusion
75. The practitioner shall express a modified conclusion in the practitioner’s
report on the financial statements as a whole when:
(a) The practitioner determines, based on the procedures performed and the
evidence obtained, that the financial statements are materially misstated; or
(b) The practitioner is unable to obtain sufficient appropriate evidence in
relation to one or more items in the financial statements that are material in
relation to the financial statements as a whole.
76. When the practitioner modifies the conclusion expressed on the financial
statements, the practitioner shall:
(a) Use the heading “Qualified Conclusion,” “Adverse Conclusion” or
“Disclaimer of Conclusion,” as appropriate, for the conclusion paragraph in
the practitioner’s report; and
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(b) Provide a description of the matter giving rise to the modification, under an
appropriate heading (for example, “Basis for Qualified Conclusion,” “Basis
for Adverse Conclusion” or “Basis for Disclaimer of Conclusion,” as
appropriate), in a separate paragraph in the practitioner’s report
immediately before the conclusion paragraph (referred to as the basis for
conclusion paragraph).
Financial statements are materially misstated
77. If the practitioner determines that the financial statements are materially
misstated, the practitioner shall express:
(a) A qualified conclusion, when the practitioner concludes that the effects of
the matter(s) giving rise to the modification are material, but not pervasive
to the financial statements; or
(b) An adverse conclusion, when the effects of the matter(s) giving rise to the
modification are both material and pervasive to the financial statements.
78. When the practitioner expresses a qualified conclusion on the financial
statements because of a material misstatement, the practitioner shall, unless
otherwise required by law or regulation, use one of the following phrases, as
appropriate:
(a) “Based on our review, except for the effects of the matter(s) described in
the Basis for Qualified Conclusion paragraph, nothing has come to our
attention that causes us to believe that the financial statements do not give
a true and fair view (or do not present fairly, in all material respects), in
accordance with the applicable financial reporting framework,” (for financial
statements prepared using a fair presentation framework); or
(b) “Based on our review, except for the effects of the matter(s) described in
the Basis for Qualified Conclusion paragraph, nothing has come to our
attention that causes us to believe that the financial statements are not
prepared, in all material respects, in accordance with the applicable
financial reporting framework,” (for financial statements prepared using a
compliance framework).
79. When the practitioner expresses an adverse conclusion on the financial
statements, the practitioner shall, unless otherwise required by law or regulation,
use one of the following phrases, as appropriate:
(a) “Based on our review, due to the significance of the matter(s) described in
the Basis for Adverse Conclusion paragraph, the financial statements do
not give a true and fair view (or do not present fairly, in all material
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respects), in accordance with the applicable financial reporting framework,”
(for financial statements prepared using a fair presentation framework); or
(b) “Based on our review, due to the significance of the matter(s) described in
the Basis for Adverse Conclusion paragraph, the financial statements are
not prepared, in all material respects, in accordance with the applicable
financial reporting framework,” (for financial statements prepared using a
compliance framework).
80. In the basis for conclusion paragraph, in relation to material misstatements
that give rise to either a qualified conclusion or an adverse conclusion, the
practitioner shall:
(a) Describe and quantify the financial effects of the misstatement if the
material misstatement relates to specific amounts in the financial
statements (including quantitative disclosures), unless impracticable, in
which case the practitioner shall so state;
(b) Explain how disclosures are misstated if the material misstatement relates
to narrative disclosures; or
(c) Describe the nature of omitted information if the material misstatement
relates to the non-disclosure of information required to be disclosed. Unless
prohibited by law or regulation, the practitioner shall include the omitted
disclosures where practicable to do so.
Inability to obtain sufficient appropriate evidence
81. If the practitioner is unable to form a conclusion on the financial statements
due to inability to obtain sufficient appropriate evidence, the practitioner shall:
(a) Express a qualified conclusion if the practitioner concludes that the possible
effects on the financial statements of undetected misstatements, if any,
could be material but not pervasive; or
(b) Disclaim a conclusion if the practitioner concludes that the possible effects
on the financial statements of undetected misstatements, if any, could be
both material and pervasive.
82. The practitioner shall withdraw from the engagement if the following
conditions are present: (Ref: Para. A114-A116)
(a) Due to a limitation on the scope of the review imposed by management
after the practitioner has accepted the engagement, the practitioner is
unable to obtain sufficient appropriate evidence to form a conclusion on the
financial statements;
(b) The practitioner has determined that the possible effects on the financial
statements of undetected misstatements are material and pervasive; and
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(c) Withdrawal is possible under applicable law or regulation.
83. When the practitioner expresses a qualified conclusion on the financial
statements due to inability to obtain sufficient appropriate evidence, the
practitioner shall, unless otherwise required by law or regulation, use one of the
following phrases, as appropriate:
(a) “Based on our review, except for the possible effects of the matter(s)
described in the Basis for Qualified Conclusion paragraph, nothing has
come to our attention that causes us to believe that the financial statements
do not give a true and fair view (or do not present fairly, in all material
respects), in accordance with the applicable financial reporting framework,”
(for financial statements prepared using a fair presentation framework); or
(b) “Based on our review, except for the possible effects of the matter(s)
described in the Basis for Qualified Conclusion paragraph, nothing has
come to our attention that causes us to believe that the financial statements
are not prepared, in all material respects, in accordance with the applicable
financial reporting framework,” (for financial statements prepared using a
compliance framework).
84. When disclaiming a conclusion on the financial statements the practitioner
shall state in the conclusion paragraph that:
(a) Due to the significance of the matter(s) described in the Basis for
Disclaimer of Conclusion paragraph, the practitioner is unable to obtain
sufficient appropriate evidence to form a conclusion on the financial
statements; and
(b) Accordingly, the practitioner does not express a conclusion on the financial
statements.
85. In the basis for conclusion paragraph, in relation to either the qualified
conclusion due to inability to obtain sufficient appropriate evidence or when the
practitioner disclaims a conclusion, the practitioner shall include the reason(s) for
the inability to obtain sufficient appropriate evidence.
The Practitioner’s Report
86. The practitioner’s report for the review engagement shall be in writing, and
shall contain the following elements: (Ref: Para. A117-A120, A141, A143)
(a) A title, which shall clearly indicate that it is the report of an independent
practitioner for a review engagement;
(b) The addressee(s), as required by the circumstances of the engagement;
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(c) An introductory paragraph that:
(i) Identifies the financial statements reviewed, including identification of
the title of each of the statements contained in the set of financial
statements and the date and period covered by each financial
statement;
(ii) Refers to the summary of significant accounting policies and other
explanatory information; and
(iii) States that the financial statements have been reviewed;
(d) A description of the responsibility of management for the preparation of the
financial statements, including an explanation that management is
responsible for: (Ref: Para. A121-A124)
(i) Their preparation in accordance with the applicable financial reporting
framework including, where relevant, their fair presentation;
(ii) Such internal control as management determines is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error;
(e) If the financial statements are special purpose financial statements:
(i) A description of the purpose for which the financial statements are
prepared and, if necessary, the intended users, or reference to a note
in the special purpose financial statements that contains that
information; and
(ii) If management has a choice of financial reporting frameworks in the
preparation of such financial statements, a reference within the
explanation of management’s responsibility for the financial
statements to management’s responsibility for determining that the
applicable financial reporting framework is acceptable in the
circumstances;
(f) A description of the practitioner’s responsibility to express a conclusion on
the financial statements including reference to this SRE and, where
relevant, applicable law or regulation; (Ref: Para. A125-126, A142)
(g) A description of a review of financial statements and its limitations, and the
following statements: (Ref: Para. A127)
(i) A review engagement under this SRE is a limited assurance
engagement;
(ii) The practitioner performs procedures, primarily consisting of making
inquiries of management and others within the entity, as appropriate,
and applying analytical procedures, and evaluates the evidence
obtained; and
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(iii) The procedures performed in a review are substantially less than
those performed in an audit conducted in accordance with Standards
on Auditing (SAs), and, accordingly, the practitioner does not express
an audit opinion on the financial statements;
(h) A paragraph under the heading “Conclusion” that contains:
(i) The practitioner’s conclusion on the financial statements as a whole in
accordance with paragraphs 72-85, as appropriate; and
(ii) A reference to the applicable financial reporting framework used to
prepare the financial statements. (Ref: Para. A128-A129)
(i) When the practitioner’s conclusion on the financial statements is modified:
(i) A paragraph under the appropriate heading that contains the
practitioner’s modified conclusion in accordance with paragraphs 72
and 75-85, as appropriate; and
(ii) A paragraph, under an appropriate heading, that provides a
description of the matter(s) giving rise to the modification; (Ref: Para.
A130)
(j) A reference to the practitioner’s obligation under this SRE to comply with
relevant ethical requirements;
(k) The date of the practitioner’s report; (Ref: Para. A137-A140)
(l) The practitioner’s signature; and (Ref: Para. A131)
(m) The place of signature.
Emphasis of Matter and Other Matter Paragraphs in the Practitioner’s
Report
Emphasis of Matter Paragraphs
87. The practitioner may consider it necessary to draw users’ attention to a
matter presented or disclosed in the financial statements that, in the practitioner’s
judgment, is of such importance that it is fundamental to users’ understanding of
the financial statements. In such cases, the practitioner shall include an
Emphasis of Matter paragraph in the practitioner’s report, provided the
practitioner has obtained sufficient appropriate evidence to conclude that the
matter is not likely to be materially misstated as presented in the financial
statements. Such paragraph shall refer only to information presented or
disclosed in the financial statements.
88. The practitioner’s report on special purpose financial statements shall
include an Emphasis of Matter paragraph alerting users of the practitioner’s
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Handbook on Auditing Pronouncements-I.B
report that the financial statements are prepared in accordance with a special
purpose framework and that, as a result, the financial statements may not be
suitable for another purpose. (Ref: Para. A132-A133)
89. The practitioner shall include an Emphasis of Matter paragraph immediately
after the paragraph that contains the practitioner’s conclusion on the financial
statements under the heading “Emphasis of Matter,” or other appropriate
heading.
Other Matter Paragraphs
90. If the practitioner considers it necessary to communicate a matter other
than those that are presented or disclosed in the financial statements that, in the
practitioner’s judgment, is relevant to users’ understanding of the review, the
practitioner’s responsibilities or the practitioner’s report and this is not prohibited
by law or regulation, the practitioner shall do so in a paragraph in the
practitioner’s report with the heading “Other Matter” or other appropriate heading.
Other Reporting Responsibilities
91. A practitioner may be requested to address other reporting responsibilities
in the practitioner’s report on the financial statements that are in addition to the
practitioner’s responsibilities under this SRE to report on the financial
statements. In such situations, those other reporting responsibilities shall be
addressed by the practitioner in a separate section in the practitioner’s report
headed “Report on Other Legal and Regulatory Requirements,” or otherwise as
appropriate to the content of the section, following the section of the report
headed “Report on the Financial Statements.” (Ref: Para. A134-A136)
Date of the Practitioner’s Report
92. The practitioner shall date the report no earlier than the date on which the
practitioner has obtained sufficient appropriate evidence as the basis for the
practitioner’s conclusion on the financial statements, including being satisfied
that: (Ref: Para. A137-A140)
(a) All the statements that comprise the financial statements under the
applicable financial reporting framework, including the related notes where
applicable, have been prepared; and
(b) Those with the recognized authority have asserted that they have taken
responsibility for those financial statements.
Documentation
93. The preparation of documentation for the review provides evidence that the
review was performed in accordance with this SRE, and legal and regulatory
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requirements where relevant, and a sufficient and appropriate record of the basis
for the practitioner’s report. The practitioner shall document the following aspects
of the engagement in a timely manner, sufficient to enable an experienced
practitioner, having no previous connection with the engagement, to understand:
(Ref: Para. A144)
(a) The nature, timing, and extent of the procedures performed to comply with
this SRE and applicable legal and regulatory requirements;
(b) Results obtained from the procedures, and the practitioner’s conclusions
formed on the basis of those results; and
(c) Significant matters arising during the engagement, the practitioner’s
conclusions reached thereon, and significant professional judgments made
in reaching those conclusions.
94. In documenting the nature, timing and extent of procedures performed as
required in this SRE, the practitioner shall record:
(a) Who performed the work and the date such work was completed; and
(b) Who reviewed the work performed for the purpose of quality control for the
engagement, and the date and extent of the review.
95. The practitioner shall also document discussions with management, those
charged with governance, and others as relevant to the performance of the
review of significant matters arising during the engagement, including the nature
of those matters.
96. If, in the course of the engagement, the practitioner identified information
that is inconsistent with the practitioner’s findings regarding significant matters
affecting the financial statements, the practitioner shall document how the
inconsistency was addressed.
Application and Other Explanatory Material
Scope of this SRE (Ref: Para. 1-2)
A1. In performing a review of financial statements, the practitioner may be
required to comply with legal or regulatory requirements, which may differ from
the requirements established in this SRE. While the practitioner may find aspects
of this SRE helpful in these circumstances, it is the responsibility of the
practitioner to ensure compliance with all relevant legal, regulatory and
professional obligations.
Reviews of Financial Information of Components in the Context of an Audit
of the Financial Statements of a Group of Entities
A2. Review engagements in accordance with this SRE may be requested for
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component entities by the auditor of the financial statements of a group of
entities. Such a review engagement performed in accordance with this SRE may
be accompanied by a request from the group auditor to undertake additional
work or procedures as needed in the circumstances of the group audit
engagement.
Relationship with SQC 1 (Ref: Para. 4)
A3. SQC 1 deals with the firm’s responsibilities to establish and maintain its
system of quality control for assurance engagements, including review
engagements. Those responsibilities are directed at establishing the firm’s:
Quality control system; and
Related policies designed to achieve the objective of the quality control
system and the firm’s procedures to implement and monitor compliance
with those policies, including policies and procedures that address each of
the following elements:
○ Leadership responsibilities for quality within the firm.
○ Relevant ethical requirements.
○ Acceptance and continuance of client relationships and specific
engagements.
○ Human resources.
○ Engagement performance.
○ Monitoring.
A4. Under SQC 1, the firm has an obligation to establish and maintain a system
of quality control to provide it with reasonable assurance that:
(a) The firm and its personnel comply with professional standards and
applicable legal and regulatory requirements; and
(b) Reports issued by the firm7 or engagement partners are appropriate in the
circumstances.8
The Engagement to Review Historical Financial Statements (Ref: Para. 5-8,
14)
A5. Reviews of financial statements may be performed for a wide range of
entities that vary by type or size, or by the level of complexity in their financial
reporting. In some cases, the review of financial statements of an entity may also
7 It is clarified that in India the reports are not issued/signed in the firm’s name, rather they are
issued/signed on behalf of the firm by the sole practitioner, proprietor or a partner of the firm, as the case
may be, in his individual name.
8 SQC 1, paragraph 3.
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be subject to the applicable laws or regulations and related reporting
requirements.
A6. Reviews may be performed in a variety of circumstances. For example,
they may be required for entities that are exempt from requirements specified in
law or regulation for mandatory audit. Reviews may also be requested on a
voluntary basis, such as in connection with financial reporting undertaken for
arrangements under the terms of a private contract, or to support funding
arrangements.
Objectives (Ref: Para. 15)
A7. This SRE requires the practitioner to disclaim a conclusion on the financial
statements if:
(a) The practitioner issues a report, or is required to issue a report for the
engagement; and
(b) The practitioner is unable to form a conclusion on the financial statements
due to inability to obtain sufficient appropriate evidence, and the practitioner
concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be both material and pervasive.
A8. The situation of being unable to obtain sufficient appropriate evidence in a
review engagement (referred to as a scope limitation) may arise from:
(a) Circumstances beyond the control of the entity;
(b) Circumstances relating to the nature or timing of the practitioner’s work; or
(c) Limitations imposed by management or those charged with governance of
the entity.
A9. This SRE sets out requirements and guidance for the practitioner when the
practitioner encounters a scope limitation, either prior to accepting a review
engagement, or during the engagement.
Definitions (Ref: Para. 16)
Use of the Terms “Management” and “Those Charged with Governance”
A10. The respective responsibilities of management and those charged with
governance will differ between entities of various types. These differences affect
the way the practitioner applies the requirements of this SRE in relation to
management or those charged with governance. Accordingly, the phrase
“management and, where appropriate, those charged with governance” used in
various places throughout this SRE is intended to alert the practitioner to the fact
that different entity environments may have different management and
governance structures and arrangements.
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A11. Various responsibilities relating to preparation of financial information and
external financial reporting will fall to either management or those charged with
governance according to factors such as:
The resources and structure of the entity; and
The respective roles of management and those charged with governance
within the entity as set out in relevant law or regulation or, if the entity is not
regulated, in any formal governance or accountability arrangements
established for the entity (for example, as recorded in contracts, a
constitution or other type of establishment documents of the entity).
For example, in small entities there is often no separation of the management
and governance roles. In larger entities, management is often responsible for
execution of the business or activities of the entity and reporting thereon, while
those charged with governance oversee management. In some entities, the
responsibility for preparation of financial statements for an entity is the legal
responsibility of those charged with governance, and in some other entities it is a
management responsibility.
Limited Assurance - Use of the Term Sufficient Appropriate Evidence (Ref:
Para. 17(f))
A12. Sufficient appropriate evidence is required to obtain limited assurance to
support the practitioner’s conclusion. Evidence is cumulative in nature and is
primarily obtained from the procedures performed during the course of the
review.
Conduct of a Review Engagement in Accordance with this SRE (Ref:
Para. 18)
A13. This SRE does not override laws and regulations that govern a review of
financial statements. In the event that those laws and regulations differ from the
requirements of this SRE, a review conducted only in accordance with laws and
regulations will not automatically comply with this SRE.
Ethical Requirements (Ref: Para. 21)
A14. The Code of Ethics issued by the ICAI establishes the fundamental
principles of professional ethics practitioners must comply with, and provides a
conceptual framework for applying those principles. The fundamental principles
are:
(a) Integrity;
(b) Objectivity;
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(c) Professional competence and due care;
(d) Confidentiality; and
(e) Professional behaviour.
The Code of Ethics also illustrates how the conceptual framework is to be
applied in specific situations. In complying with the Code, threats to the
practitioner’s compliance with relevant ethical requirements are required to be
identified and appropriately addressed.
A15. In the case of an engagement to review financial statements, the Code of
Ethics requires that the practitioner be independent of the entity whose financial
statements are reviewed. The Code of Ethics describes independence as
comprising both independence of mind and independence in appearance. The
practitioner’s independence safeguards the practitioner’s ability to form a
conclusion without being affected by influences that might otherwise compromise
that conclusion. Independence enhances the practitioner’s ability to act with
integrity, to be objective and to maintain an attitude of professional skepticism.
Professional Skepticism and Professional Judgment
Professional Skepticism (Ref: Para. 22)
A16. Professional skepticism is necessary for the critical assessment of evidence
in a review. This includes questioning inconsistencies and investigating
contradictory evidence, and questioning the reliability of responses to inquiries
and other information obtained from management and those charged with
governance. It also includes consideration of the sufficiency and appropriateness
of evidence obtained in the light of the engagement circumstances.
A17. Professional skepticism includes being alert to, for example:
Evidence that is inconsistent with other evidence obtained.
Information that calls into question the reliability of documents and
responses to inquiries to be used as evidence.
Conditions that may indicate possible fraud.
Any other circumstances that suggest the need for additional procedures.
A18. Maintaining professional skepticism throughout the review is necessary if
the practitioner is to reduce the risks of:
Overlooking unusual circumstances.
Over-generalizing when drawing conclusions from evidence obtained.
Using inappropriate assumptions in determining the nature, timing, and
extent of the procedures performed in the review, and evaluating the results
thereof.
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A19. The practitioner cannot be expected to disregard past experience of the
honesty and integrity of the entity’s management and those charged with
governance. Nevertheless, a belief that management and those charged with
governance are honest and have integrity does not relieve the practitioner of the
need to maintain professional skepticism or allow the practitioner to be satisfied
with evidence that is inadequate for the purpose of the review.
Professional Judgment (Ref: Para. 23)
A20. Professional judgment is essential to the proper conduct of a review
engagement. This is because interpretation of relevant ethical requirements and
the requirements of this SRE, and the need for informed decisions throughout
the performance of a review engagement, require the application of relevant
knowledge and experience to the facts and circumstances of the engagement.
Professional judgment is necessary, in particular:
Regarding decisions about materiality, and the nature, timing, and extent of
procedures used to meet the requirements of this SRE, and to gather
evidence.
When evaluating whether the evidence obtained from the procedures
performed reduces the engagement risk to a level that is acceptable in the
engagement circumstances.
When considering management’s judgments in applying the entity’s
applicable financial reporting framework.
When forming the conclusion on the financial statements based on the
evidence obtained, including considering the reasonableness of the
estimates made by management in preparing the financial statements.
A21. The distinguishing feature of the professional judgment expected of the
practitioner is that it is exercised by a practitioner whose training, knowledge and
experience, including in the use of assurance skills and techniques, have
assisted in developing the necessary competencies to achieve reasonable
judgments. Consultation on difficult or contentious matters during the course of
the engagement, both within the engagement team and between the
engagement team and others at the appropriate level within or outside the firm,
assists the practitioner in making informed and reasonable judgments.
A22. The exercise of professional judgment in individual engagements is based
on the facts and circumstances that are known by the practitioner throughout the
engagement, including:
Knowledge acquired from engagements carried out with respect to the
entity’s financial statements in prior periods, where applicable.
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The practitioner’s understanding of the entity and its environment, including
its accounting system, and of the application of the applicable financial
reporting framework in the entity’s industry.
The extent to which the preparation and presentation of the financial
statements require the exercise of management judgment.
A23. Professional judgment can be evaluated based on whether the judgment
reached reflects a competent application of assurance and accounting principles,
and is appropriate in the light of, and consistent with, the facts and
circumstances that were known to the practitioner up to the date of the
practitioner’s report.
A24. Professional judgment needs to be exercised throughout the engagement.
It also needs to be appropriately documented in accordance with the
requirements of this SRE. Professional judgment is not to be used as the
justification for decisions that are not otherwise supported by the facts and
circumstances of the engagement, or the evidence obtained.
Engagement Level Quality Control (Ref: Para. 24-25)
A25. Assurance skills and techniques include:
Applying professional skepticism and professional judgment to planning
and performing an assurance engagement, including obtaining and
evaluating evidence;
Understanding information systems and the role and limitations of internal
control;
Linking the consideration of materiality and engagement risks to the nature,
timing and extent of procedures for the review;
Applying procedures as appropriate to the review engagement, which may
include other types of procedures in addition to inquiry and analytical
procedures (such as inspection, re-calculation, re-performance, observation
and confirmation);
Systematic documentation practices; and
Application of skills and practices relevant for writing reports for assurance
engagements.
A26. Within the context of the firm’s system of quality control, engagement teams
have a responsibility to implement quality control procedures applicable to the
engagement, and provide the firm with relevant information to enable the
functioning of that part of the firm’s system of quality control relating to
independence.
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A27. The actions of the engagement partner and appropriate messages to the
other members of the engagement team, in the context of the engagement
partner taking responsibility for the overall quality on each review engagement,
emphasize the fact that quality is essential in performing a review engagement,
and the importance to the quality of the review engagement of:
(a) Performing work that complies with professional standards and regulatory
and legal requirements.
(b) Complying with the firm’s quality control policies and procedures as
applicable.
(c) Issuing a report for the engagement that is appropriate in the
circumstances.
(d) The engagement team’s ability to raise concerns without fear of reprisals.
A28. Unless information provided by the firm or other parties suggests otherwise,
the engagement team is entitled to rely on the firm’s system of quality control.
For example, the engagement team may rely on the firm’s system of quality
control in relation to:
Competence of personnel through their recruitment and formal training.
Independence through the accumulation and communication of relevant
independence information.
Maintenance of client relationships through acceptance and continuance
systems.
Adherence to regulatory and legal requirements through the monitoring
process.
In considering deficiencies identified in the firm’s system of quality control that
may affect the review engagement, the engagement partner may consider
measures taken by the firm to rectify those deficiencies.
A29. A deficiency in the firm’s system of quality control does not necessarily
indicate that a review engagement was not performed in accordance with
professional standards and applicable legal and regulatory requirements, or that
the practitioner’s report was not appropriate.
Assignment of Engagement Teams (Ref: Para. 25(b))
A30. When considering the appropriate competence and capabilities expected of
the engagement team as a whole, the engagement partner may take into
consideration such matters as the team’s:
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Understanding of, and practical experience with, review engagements of a
similar nature and complexity through appropriate training and participation.
Understanding of professional standards and applicable legal and
regulatory requirements.
Technical expertise, including expertise with relevant information
technology and specialized areas of accounting or assurance.
Knowledge of relevant industries in which the client operates.
Ability to apply professional judgment.
Understanding of the firm’s quality control policies and procedures.
Acceptance and Continuance of Client Relationships and Review
Engagements (Ref: Para. 25(d)(i))
A31. SQC 1 requires the firm to obtain information as it considers necessary in
the circumstances before accepting an engagement with a new client, when
deciding whether to continue an existing engagement, and when considering
acceptance of a new engagement with an existing client. Information that assists
the engagement partner in determining whether acceptance and continuance of
client relationships and review engagements are appropriate may include
information concerning:
The integrity of the principal owners, key management and those charged
with governance; and
Significant matters that have arisen during the current or a previous review
engagement, and their implications for continuing the relationship.
A32. If the engagement partner has cause to doubt management’s integrity to a
degree that is likely to affect proper performance of the review, it is not
appropriate under this SRE to accept the engagement, unless required by law or
regulation, as doing so may lead to the practitioner being associated with the
entity’s financial statements in an inappropriate manner.
Acceptance and Continuance of Client Relationships and Review
Engagements (Ref: Para. 29)
A33. The practitioner’s consideration of engagement continuance, and relevant
ethical requirements, including independence, occurs throughout the
engagement, as conditions and changes in circumstances occur. Performing
initial procedures on engagement continuance and evaluation of relevant ethical
requirements (including independence) at the beginning of an engagement
informs the practitioner’s decisions and actions prior to the performance of other
significant activities for the engagement.
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Factors Affecting Acceptance and Continuance of Client Relationships and
Review Engagements (Ref: Para. 29)
A34. Assurance engagements may only be accepted when the engagement
exhibits certain characteristics9 that are conducive to achieving the practitioner’s
objectives specified for the engagement.
Rational Purpose (Ref: Para. 29(a)(i))
A35. It may be unlikely that there is a rational purpose for the engagement if, for
example:
(a) There is a significant limitation on the scope of the practitioner’s work;
(b) The practitioner suspects the engaging party intends to associate the
practitioner’s name with the financial statements in an inappropriate
manner; or
(c) The engagement is intended to meet compliance requirements of relevant
law or regulation and such law or regulation requires the financial
statements to be audited.
Review Engagement is Appropriate (Ref: Para. 29(a)(ii) and 29(d))
A36. When the practitioner’s preliminary understanding of the engagement
circumstances indicates that accepting a review engagement would not be
appropriate, the practitioner may consider recommending that another type of
engagement be undertaken. Depending on the circumstances, the practitioner
may, for example, believe that performance of an audit engagement would be
more appropriate than a review. In other cases, if the engagement circumstances
preclude performance of an assurance engagement, the practitioner may
recommend a compilation engagement, or other accounting services
engagement, as appropriate.
Information Needed to Perform the Review Engagement (Ref: Para. 29(c))
A37. An example of where the practitioner may have cause to doubt that the
information needed to perform the review will be available or reliable is where the
accounting records necessary for purposes of performing analytical procedures
are suspected to be substantially inaccurate or incomplete. This consideration is
not directed at the need that sometimes arises in the course of a review
engagement to assist management by recommending adjusting entries required
to finalize the financial statements prepared by management.
Preconditions for Accepting a Review Engagement (Ref: Para. 30)
A38. This SRE also requires the practitioner to ascertain certain matters, upon
which it is necessary for the practitioner and the entity’s management to agree,
9 Framework for Assurance Engagements, paragraph 16.
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and which are within the control of the entity, prior to the practitioner accepting
the engagement.
The Applicable Financial Reporting Framework (Ref: Para. 30(a))
A39. A condition for acceptance of an assurance engagement is that the
criteria10 referred to in the definition of an assurance engagement are suitable
and available to intended users.11 For purposes of this SRE, the applicable
financial reporting framework provides the criteria the practitioner uses to review
the financial statements including, where relevant, the fair presentation of the
financial statements. Some financial reporting frameworks are fair presentation
frameworks, while others are compliance frameworks. The requirements of the
applicable financial reporting framework determine the form and content of the
financial statements, including what constitutes a complete set of financial
statements.
Acceptability of the applicable financial reporting framework
A40. Without an acceptable financial reporting framework, management does not
have an appropriate basis for the preparation of the financial statements and the
practitioner does not have suitable criteria for the review of the financial
statements.
A41. The practitioner’s determination of the acceptability of the financial reporting
framework applied in the financial statements is made in the context of the
practitioner’s understanding of who the intended users of the financial statements
are. The intended users are the person, persons or group of persons for whom
the practitioner prepares the report. The practitioner may not be able to identify
all those who will read the assurance report, particularly where there is a large
number of people who have access to it.
A42. In many cases, in the absence of any indications to the contrary, the
practitioner may presume that the applicable financial reporting framework is
acceptable (for example, a financial reporting framework that is prescribed by law
or regulation governing the entity to be used in the preparation of general
purpose financial statements for certain types of entities).
A43. Factors that are relevant to the practitioner’s determination of the
acceptability of the financial reporting framework to be applied in the preparation
of the financial statements include:
The nature of the entity (for example, whether it is a business enterprise, a
public sector entity or a not-for-profit organization).
10 Framework for Assurance Engagements, paragraph 33.
11 Framework for Assurance Engagements, paragraph 16(b)(ii).
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The purpose of the financial statements (for example, whether they are
prepared to meet the common financial information needs of a wide range
of users or the financial information needs of specific users).
The nature of the financial statements (for example, whether the financial
statements are a complete set of financial statements or a single financial
statement).
Whether the applicable financial reporting framework is prescribed in
relevant law or regulation.
A44. If the financial reporting framework used to prepare the financial statements
is not acceptable in view of the purpose of the financial statements and
management will not agree to use of a financial reporting framework that is
acceptable in the practitioner’s view, the practitioner is required under this SRE
to decline the engagement.
A45. Deficiencies in the applicable financial reporting framework that indicate
that the framework is not acceptable may be encountered after the review
engagement has been accepted. When use of that financial reporting framework
is not prescribed by law or regulation, management may decide to adopt another
framework that is acceptable. When management does so, the practitioner is
required under this SRE to agree the new terms of the review engagement with
management to reflect the change in the applicable financial reporting
framework.
Responsibilities of Management and Those Charged with Governance (Ref:
Para. 30(b), 37(e))
A46. The financial statements subject to review are those of the entity, prepared
by management of the entity with oversight from those charged with governance.
This SRE does not impose responsibilities on management and those charged
with governance, nor does it override laws and regulations that govern their
respective responsibilities. However, a review in accordance with this SRE is
conducted on the premise that management, and those charged with
governance as appropriate, have acknowledged certain responsibilities that are
fundamental to the conduct of the review. The review of the financial statements
does not relieve management and those charged with governance of their
responsibilities.
A47. As part of its responsibility for the preparation of the financial statements,
management is required to exercise judgment in making accounting estimates
that are reasonable in the circumstances, and to select and apply appropriate
accounting policies. These judgments are made in the context of the applicable
financial reporting framework.
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A48. Because of the significance of the preconditions for undertaking a review of
financial statements, the practitioner is required under this SRE to obtain the
agreement of management that it understands its responsibilities before
accepting a review engagement. The practitioner may obtain management’s
agreement either orally or in writing. However, management’s agreement is
subsequently recorded within the written terms of the engagement.
A49. If management, and those charged with governance where appropriate, do
not or will not acknowledge their responsibilities in relation to the financial
statements, it is not appropriate to accept the engagement unless law or
regulation requires the practitioner to do so. In circumstances where the
practitioner is required to accept the review engagement, the practitioner may
need to explain to management and those charged with governance, where
different, the importance of these matters and the implications for the
engagement.
Additional Considerations When the Wording of the Practitioner’s Report is
Prescribed by Law or Regulation (Ref: Para. 34-35)
A50. This SRE requires the practitioner to not represent compliance with this
SRE unless the practitioner has complied with all the requirements of this SRE
that are relevant to the review engagement. Law or regulation may prescribe
matters in relation to an engagement that would ordinarily cause the practitioner
to decline the engagement were it possible to do so, for example, if:
The practitioner considers that the financial reporting framework prescribed
by law or regulation is not acceptable; or
The prescribed layout or wording of the practitioner’s report is in a form or
in terms that are significantly different from the layout or wording required
by this SRE.
Under this SRE, a review conducted in these situations does not comply with this
SRE and the practitioner cannot represent compliance with this SRE in the report
issued for the engagement. Notwithstanding that the practitioner is not permitted
to represent compliance with this SRE, the practitioner is, however, encouraged
to apply this SRE, including the reporting requirements, to the extent practicable.
When appropriate to avoid misunderstanding, the practitioner may consider
including a statement in the report that the review is not conducted in accordance
with this SRE.
Agreeing the Terms of Engagement
Engagement Letter or Other Form of Written Agreement (Ref: Para. 37)
A51. It is in the interests of both management and those charged with
governance, and the practitioner, that the practitioner sends an engagement
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letter prior to performing the review engagement, to help avoid
misunderstandings with respect to the engagement.
Form and content of the engagement letter
A52. The form and content of the engagement letter may vary for each
engagement. In addition to including the matters required by this SRE, an
engagement letter may make reference to, for example:
Arrangements concerning the involvement of other practitioners and
experts in the review engagement.
Arrangements to be made with the predecessor practitioner, if any, in the
case of an initial engagement.
The fact that a review engagement will not satisfy any statutory or third
party requirements for an audit.
The expectation that management will provide written representations to
the practitioner.
The agreement of management to inform the practitioner of facts that may
affect the financial statements of which management may become aware
during the period from the date of the practitioner’s report to the date the
financial statements are issued.
A request for management to acknowledge receipt of the engagement letter
and to agree to the terms of the engagement outlined therein.
Review of components of groups of entities
A53. The auditor of the financial statements of a group of entities may request
that a practitioner perform a review of the financial information of a component
entity of the group. Depending on the instructions of the group auditor, a review
of the financial information of a component may be performed in accordance with
this SRE. The group auditor may also specify additional procedures to
supplement the work done for the review performed under this SRE. Where the
practitioner conducting the review is the auditor of the component entity’s
financial statements, the review is not performed in accordance with this SRE.
Responsibilities of Management prescribed by law or regulation (Ref: Para.
37(e))
A54. If, in the circumstances of the engagement, the practitioner concludes that
it is not necessary to record certain terms of the engagement in an engagement
letter, the practitioner is still required to seek the written agreement from
management, and those charged with governance where appropriate, required
under this SRE that they acknowledge and understand their responsibilities set
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out in this SRE. This written agreement may use the wording of the law or
regulation if the law or regulation establishes responsibilities for management
that are equivalent in effect to those described in this SRE.
Illustrative Engagement Letter (Ref: Para. 37)
A55. An illustrative engagement letter for a review engagement is set out in
Appendix 1 to this SRE.
Recurring Engagements (Ref: Para. 38)
A56. The practitioner may decide not to send a new engagement letter or other
written agreement each period. However, the following factors may indicate that
it is appropriate to revise the terms of the review engagement or to remind
management and those charged with governance, as appropriate, of the existing
terms of the engagement:
Any indication that management misunderstands the objective and scope
of the review.
Any revised or special terms of the engagement.
A recent change of senior management of the entity.
A significant change in ownership of the entity.
A significant change in nature or size of the entity’s business.
A change in legal or regulatory requirements affecting the entity.
A change in the applicable financial reporting framework.
Acceptance of a Change in the Terms of the Review Engagement
Request to Change the Terms of the Review Engagement (Ref: Para. 39)
A57. A request from the entity for the practitioner to change the terms of the
review engagement may result from factors including:
A change in circumstances affecting the need for the service.
Misunderstanding as to the nature of a review engagement as originally
requested.
A restriction on the scope of the review engagement, whether imposed by
management or caused by other circumstances.
A58. A change in circumstances that affects the entity’s requirements or a
misunderstanding concerning the nature of the service originally requested may
be considered a reasonable basis for requesting a change to the terms of the
review engagement.
A59. In contrast, a change may not be considered reasonable if it appears that
the change relates to information that is incorrect, incomplete or otherwise
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unsatisfactory. An example might be where the practitioner is unable to obtain
sufficient appropriate evidence for a material item in the financial statements, and
management asks for the engagement to be changed to a related services
engagement to avoid the expression of a modified conclusion by the practitioner.
Request to Change the Nature of the Engagement (Ref: Para. 40)
A60. Before agreeing to change a review engagement to another type of
engagement or related service, a practitioner who was engaged to perform a
review in accordance with this SRE may need to assess, in addition to the
matters referred to in this SRE, any legal or contractual implications of the
change.
A61. If the practitioner concludes that there is reasonable justification to change
the review engagement to another type of engagement or related service, the
work performed in the review engagement to the date of change may be relevant
to the changed engagement; however, the work required to be performed and
the report to be issued would be those appropriate to the revised engagement. In
order to avoid confusing the reader, the report on the other engagement or
related service would not include reference to:
(a) The original review engagement; or
(b) Any procedures that may have been performed in the original review
engagement, except where the review engagement is changed to an
engagement to perform agreed-upon procedures and thus reference to the
procedures performed is a normal part of the report.
Communication with Management and Those Charged with
Governance (Ref: Para. 42)
A62. In a review engagement, the practitioner’s communications with
management and those charged with governance take the form of:
(a) Inquiries the practitioner makes in the course of performing the procedures
for the review; and
(b) Other communications, in the context of having effective two-way
communication to understand matters arising and to develop a constructive
working relationship for the engagement.
A63. The appropriate timing for communications will vary with the circumstances
of the engagement. Relevant factors include the significance and nature of the
matter, and any action expected to be taken by management or those charged
with governance. For example, it may be appropriate to communicate a
significant difficulty encountered during the review as soon as practicable if
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management or those charged with governance are able to assist the practitioner
to overcome the difficulty.
A64. Law or regulation may restrict the practitioner’s communication of certain
matters with those charged with governance. For example, law or regulation may
specifically prohibit a communication, or other action, that might prejudice an
investigation by an appropriate authority into an actual, or suspected, illegal act.
In some circumstances, potential conflicts between the practitioner’s obligations
of confidentiality and obligations to communicate may be complex. In such
cases, the practitioner may consider obtaining legal advice.
Communicating Matters Concerning the Review
A65. Matters to be communicated to management or those charged with
governance, as appropriate, under this SRE may include:
The practitioner’s responsibilities in the review engagement, as included in
the engagement letter or other suitable form of written agreement.
Significant findings from the review, for example:
○ The practitioner’s views about significant qualitative aspects of the
entity’s accounting practices, including accounting policies,
accounting estimates and financial statement disclosures.
○ Significant findings from the performance of procedures, including
situations where the practitioner considered performance of additional
procedures necessary under this SRE. The practitioner may need to
confirm that those charged with governance have the same
understanding of the facts and circumstances relevant to specific
transactions or events.
○ Matters arising that may lead to modification of the practitioner’s
conclusion.
○ Significant difficulties, if any, encountered during the review; for
example, unavailability of expected information; unexpected inability
to obtain evidence that the practitioner considers necessary for the
review; or restrictions imposed on the practitioner by management. In
some circumstances, such difficulties may constitute a scope
limitation that, if not addressed by management or those charged with
governance, may lead to modification of the practitioner’s conclusion
or to the practitioner’s withdrawal from the engagement in certain
circumstances.
A66. In some entities, different persons are responsible for the management and
the governance of an entity. In these circumstances, management may have the
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responsibility to communicate matters of governance interest to those charged
with governance. Communication by management with those charged with
governance of matters that the practitioner is required to communicate does not
relieve the practitioner of the responsibility to also communicate them to those
charged with governance. However, communication of these matters by
management may affect the form or timing of the practitioner’s communication
with those charged with governance.
Communication with Third Parties
A67. In some entities, the practitioner may be required by law or regulation to, for
example:
Notify a regulatory or enforcement body of certain matters communicated
with those charged with governance. For example, in some cases the
practitioner has a duty to report misstatements to authorities where
management and those charged with governance fail to take corrective
action.
Submit copies of certain reports prepared for those charged with
governance to relevant regulatory or funding bodies or, in some cases,
make such reports publicly available.
A68. Unless required by law or regulation to provide a third party with a copy of
the practitioner’s written communications with those charged with governance,
the practitioner may need the prior consent of management or those charged
with governance before doing so.
Performing the Engagement
Materiality in a Review of Financial Statements (Ref: Para. 43)
A69. The practitioner’s consideration of materiality is made in the context of the
applicable financial reporting framework. Some financial reporting frameworks
discuss the concept of materiality in the context of the preparation and
presentation of financial statements. Although financial reporting frameworks
may discuss materiality in different terms, they generally explain that:
Misstatements, including omissions, are considered to be material if they,
individually or in the aggregate, could reasonably be expected to influence
the economic decisions of users taken on the basis of the financial
statements;
Judgments about materiality are made in light of surrounding
circumstances, and are affected by the size or nature of a misstatement, or
a combination of both; and
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Judgments about matters that are material to users of the financial
statements are based on a consideration of the common financial
information needs of users as a group. The possible effect of
misstatements on specific individual users, whose needs may vary widely,
is not considered.
A70. If present in the applicable financial reporting framework, a discussion of
the concept of materiality provides a frame of reference for the practitioner in
determining materiality for the review. If not present, the above considerations
provide the practitioner with a frame of reference.
A71. The practitioner’s determination of materiality is a matter of professional
judgment, and is affected by the practitioner’s perception of the needs of the
intended users of the financial statements. In this context, it is reasonable for the
practitioner to assume that users:
Have a reasonable knowledge of business and economic activities and
accounting, and a willingness to study the information in the financial
statements with reasonable diligence;
Understand that financial statements are prepared, presented and reviewed
to levels of materiality;
Recognize the uncertainties inherent in the measurement of amounts
based on the use of estimates, judgment and the consideration of future
events; and
Make reasonable economic decisions on the basis of the information in the
financial statements.
Further, unless the review engagement is undertaken for financial statements
that are intended to meet the particular needs of specific users, the possible
effect of misstatements on specific users, whose information needs may vary
widely, is not ordinarily considered.
A72. The practitioner’s judgment about what is material in relation to the financial
statements as a whole is the same regardless of the level of assurance obtained
by a practitioner as the basis for expressing the conclusion on the financial
statements.
Revising Materiality (Ref: Para. 44)
A73. The practitioner’s determination of materiality for the financial statements as
a whole may need to be revised during the engagement as a result of:
A change in the circumstances that occurred during the review (for
example, a decision to dispose of a major part of the entity’s business).
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New information, or a change in the practitioner’s understanding of the
entity and its environment as a result of performing procedures for the
review in accordance with this SRE (for example, if during the review it
appears as though actual financial results are likely to be substantially
different from the anticipated period-end financial results that were used
initially to determine materiality for the financial statements as a whole).
The Practitioner’s Understanding (Ref: Para. 45-46)
A74. The practitioner uses professional judgment to determine the extent of the
understanding of the entity and its environment required to perform the review of
the entity’s financial statements in accordance with this SRE. The practitioner’s
primary consideration is whether the understanding obtained is sufficient to meet
the practitioner’s objectives for the engagement. The breadth and depth of the
overall understanding that the practitioner obtains is less than that possessed by
management.
A75. Obtaining an understanding of the entity and its environment is a continual
dynamic process of gathering, updating and analyzing information throughout the
review engagement. The practitioner’s understanding is obtained and applied on
an iterative basis throughout performance of the engagement, and is updated as
changes in conditions and circumstances occur. Initial procedures for
engagement acceptance and continuance at the time of commencement of a
review engagement are based on the practitioner’s preliminary understanding of
the entity and of the engagement circumstances. In a continuing client
relationship, the practitioner’s understanding includes knowledge obtained from
prior engagements performed by the practitioner in relation to the entity’s
financial statements and other financial information.
A76. The understanding establishes a frame of reference within which the
practitioner plans and performs the review engagement, and exercises
professional judgment throughout the engagement. Specifically, the
understanding needs to be sufficient for the practitioner to be able to identify
areas in the financial statements where material misstatements are likely to
arise, to inform the practitioner’s approach to designing and performing
procedures to address those areas.
A77. In obtaining an understanding of the entity and its environment, and of the
applicable financial reporting framework, the practitioner may also consider:
Whether the entity is a component of a group of entities, or an associated
entity of another entity.
The complexity of the financial reporting framework.
The entity’s financial reporting obligations or requirements, and whether
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those obligations or requirements exist under applicable law or regulation or
in the context of voluntary financial reporting arrangements established
under formalized governance or accountability arrangements, for example,
under contractual arrangements with third parties.
Relevant provisions of laws and regulations that are generally recognized to
have a direct effect on the determination of material amounts and
disclosures in the financial statements, such as tax and pension laws and
regulations.
The level of development of the entity’s management and governance
structure regarding management and oversight of the entity’s accounting
records and financial reporting systems that underpin preparation of the
financial statements. Smaller entities often have fewer employees, which
may influence how management exercises oversight. For example,
segregation of duties may not be practicable. However, in a small owner-
managed entity, the owner-manager may be able to exercise more effective
oversight than in a larger entity. This oversight may compensate for the
generally more limited opportunities for segregation of duties.
The “tone at the top” and the entity’s control environment through which the
entity addresses risks relating to financial reporting and compliance with the
entity’s financial reporting obligations.
The level of development and complexity of the entity’s financial accounting
and reporting systems and related controls through which the entity’s
accounting records and related information are maintained.
The entity’s procedures for recording, classifying and summarizing
transactions, accumulating information for inclusion in the financial
statements and related disclosures.
The types of matters that required accounting adjustments in the entity’s
financial statements in prior periods.
Designing and Performing Procedures (Ref: Para. 47, 55)
A78. The planned nature, timing and extent of the procedures the practitioner
considers are needed to obtain sufficient appropriate evidence as the basis for a
conclusion on the financial statements as a whole are influenced by:
(a) The requirements of this SRE; and
(b) Requirements established under applicable law or regulation, including
additional reporting requirements contained in applicable laws or
regulations.
A79. When the practitioner is engaged to review the financial statements of a
group of entities, the planned nature, timing and extent of the procedures for the
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review are directed at achieving the practitioner’s objectives for the review
engagement stated in this SRE, but in the context of the group financial
statements.
A80. The requirements of this SRE relating to designing and performing inquiry
and analytical procedures, and procedures addressing specific circumstances,
are designed to enable the practitioner to achieve the objectives specified in this
SRE. The circumstances of review engagements vary widely and, accordingly,
there may be circumstances where the practitioner may consider it effective or
efficient to design and perform other procedures. For example, if in the course of
obtaining an understanding of the entity, the practitioner becomes aware of a
significant contract the practitioner may choose to read the contract.
A81. The fact that the practitioner may deem it necessary to perform other
procedures does not alter the practitioner’s objective of obtaining limited
assurance in relation to the financial statements as a whole.
Significant or Unusual Transactions
A82. The practitioner may consider, reviewing the accounting records with a view
to identifying significant or unusual transactions that may require specific
attention in the review.
Inquiry (Ref: Para. 46-48)
A83. In a review, inquiry includes seeking information of management and other
persons within the entity, as the practitioner considers appropriate in the
engagement circumstances. The practitioner may also extend inquiries to obtain
non-financial data if appropriate. Evaluating the responses provided by
management is integral to the inquiry process.
A84. Depending on the engagement circumstances, inquiries may also include
inquiries about:
Actions taken at meetings of owners, those charged with governance and
committees thereof, and proceedings at other meetings, if any, that affect
the information and disclosures contained in the financial statements.
Communications the entity has received, or expects to receive or obtain,
from regulatory agencies.
Matters arising in the course of applying other procedures. When
performing further inquiries in relation to identified inconsistencies, the
practitioner considers the reasonableness and consistency of
management’s responses in light of the results obtained from other
procedures, and the practitioner’s knowledge and understanding of the
entity and the industry in which it operates.
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A85. Evidence obtained through inquiry is often the principal source of evidence
about management intent. However, information available to support
management’s intent may be limited. In that case, understanding management’s
past history of carrying out its stated intentions, management’s stated reasons
for choosing a particular course of action, and management’s ability to pursue a
specific course of action may provide relevant information to corroborate the
evidence obtained through inquiry. Application of professional skepticism in
evaluating responses provided by management is important to enable the
practitioner to evaluate whether there are any matter(s) that would cause the
practitioner to believe the financial statements may be materially misstated.
A86. Performing inquiry procedures assists the practitioner also in obtaining or
updating the practitioner’s understanding of the entity and its environment, to be
able to identify areas where material misstatements are likely to arise in the
financial statements.
Inquiry about the entity’s ability to continue as a going concern (Ref: Para. 48(f))
A87. Often in smaller entities, management may not have prepared an
assessment of the entity’s ability to continue as a going concern, but instead may
rely on knowledge of the business and anticipated future prospects. In these
circumstances, it may be appropriate to discuss the medium and long-term
prospects and financing of the entity with management, including consideration
of whether management’s contentions are not inconsistent with the practitioner’s
understanding of the entity.
Analytical Procedures (Ref: Para. 46-47, 49)
A88. In a review of financial statements, performing analytical procedures assists
the practitioner in:
Obtaining or updating the practitioner’s understanding of the entity and its
environment, including to be able to identify areas where material
misstatements are likely to arise in the financial statements.
Identifying inconsistencies or variances from expected trends, values or
norms in the financial statements such as the level of congruence of the
financial statements with key data, including key performance indicators.
Providing corroborative evidence in relation to other inquiry or analytical
procedures already performed.
Serving as additional procedures when the practitioner becomes aware of
matter(s) that cause the practitioner to believe that the financial statements
may be materially misstated. An example of such an additional procedure is
a comparative analysis of monthly revenue and cost figures across profit
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centers, branches or other components of the entity, to provide evidence
about financial information contained in line items or disclosures contained
in the financial statements.
A89. Various methods may be used to perform analytical procedures. These
methods range from performing simple comparisons to performing complex
analysis using statistical techniques. The practitioner may, for example, apply
analytical procedures to evaluate the financial information underlying the
financial statements through analysis of plausible relationships among both
financial and non-financial data, and assessment of results for consistency with
expected values with a view to identifying relationships and individual items that
appear unusual, or that vary from expected trends or values. The practitioner
would compare recorded amounts, or ratios developed from recorded amounts,
to expectations developed by the practitioner from information obtained from
relevant sources. Examples of sources of information the practitioner often uses
to develop expectations, depending on the engagement circumstances, include:
Financial information for comparable prior period(s), taking known changes
into account.
Information about expected operating and financial results, such as
budgets or forecasts including extrapolations from interim or annual data.
Relationships among elements of financial information within the period.
Information regarding the industry in which the entity operates, such as
gross margin information, or comparison of the entity’s ratio of sales to
accounts receivable with industry averages or with other entities of
comparable size in the same industry.
Relationships of financial information with relevant non-financial
information, such as payroll costs to number of employees.
A90. The practitioner’s consideration of whether data to be used for analytical
procedures are satisfactory for the intended purpose(s) of those procedures is
based on the practitioner’s understanding of the entity and its environment, and
is influenced by the nature and source of the data, and by the circumstances in
which the data are obtained. The following considerations may be relevant:
Source of the information available. For example, information may be more
reliable when it is obtained from independent sources outside the entity;
Comparability of the information available. For example, broad industry
data may need to be supplemented or be adjusted to be comparable to
data of an entity that produces and sells specialized products;
Nature and relevance of the information available; for example, whether the
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entity’s budgets are established as results to be expected rather than as
goals to be achieved; and
The knowledge and expertise involved in the preparation of the information,
and related controls that are designed to ensure its completeness, accuracy
and validity.
Such controls may include, for example, controls over the preparation,
review and maintenance of budgetary information.
Procedures to Address Specific Circumstances
Fraud and non-compliance with laws or regulations (Ref: Para. 52(d))
A91. Under this SRE, if the practitioner has identified or suspects fraud or illegal
acts, the practitioner is required to determine whether there is a responsibility to
report the occurrence or suspicion to a party outside the entity. Although the
practitioner’s professional duty to maintain the confidentiality of client information
may preclude such reporting, the practitioner’s legal responsibilities may override
the duty of confidentiality in some circumstances.
Events or conditions that may cast doubt regarding use of the going concern
assumption in the financial statements (Ref: Para. 54)
A92. The list of factors below gives examples of events or conditions that,
individually or collectively, may cast significant doubt about the going concern
assumption. The list is not all inclusive, and the existence of one or more of the
items does not always signify that uncertainty exists about whether the entity can
continue as a going concern.
Financial
Net liability or net current liability position.
Fixed-term borrowings approaching maturity without realistic prospects of
renewal or repayment, or excessive reliance on short-term borrowings to
finance long-term assets.
Indications of withdrawal of financial support by creditors.
Negative operating cash flows indicated by historical or prospective
financial statements.
Adverse key financial ratios.
Substantial operating losses or significant deterioration in the value of
assets used to generate cash flows.
Arrears or discontinuance of dividends.
Inability to pay creditors on due dates.
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Inability to comply with the terms of loan agreements.
Change from credit to cash-on-delivery transactions with suppliers.
Inability to obtain financing for essential new product development or other
essential investments.
Operating
Management intentions to liquidate the entity or to cease operations.
Loss of key management without replacement.
Loss of a major market, key customer(s), franchise, license, or principal
supplier(s).
Labor difficulties.
Shortages of important supplies.
Emergence of a highly successful competitor.
Other
Non-compliance with capital or other statutory requirements.
Pending legal or regulatory proceedings against the entity that may, if
successful, result in claims that the entity is unlikely to be able to satisfy.
Changes in law or regulation or government policy expected to adversely
affect the entity.
Uninsured or underinsured catastrophes when they occur.
The significance of such events or conditions often can be mitigated by other
factors. For example, the effect of an entity being unable to make its normal debt
repayments may be counter-balanced by management’s plans to maintain
adequate cash flows by alternative means, such as by disposing of assets,
rescheduling loan repayments, or obtaining additional capital. Similarly, the loss
of a principal supplier may be mitigated by the availability of a suitable alternative
source of supply.
Reconciling the Financial Statements to the Underlying Accounting
Records (Ref: Para. 56)
A93. The practitioner ordinarily obtains evidence that the financial statements
agree with, or reconcile to, the underlying accounting records by tracing the
financial statement amounts and balances to the relevant accounting records
such as the general ledger, or to a summary record or schedule that reflects the
agreement or reconciliation of the financial statement amounts with the
underlying accounting records (such as a trial balance).
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Performing Additional Procedures (Ref: Para. 57)
A94. Additional procedures are required under this SRE if the practitioner
becomes aware of a matter that causes the practitioner to believe the financial
statements may be materially misstated.
A95. The practitioner’s response in undertaking additional procedures with
respect to an item the practitioner has cause to believe may be materially
misstated in the financial statements will vary, depending on the circumstances,
and is a matter for the practitioner’s professional judgment.
A96. The practitioner’s judgment about the nature, timing and extent of additional
procedures that are needed to obtain evidence to either conclude that a material
misstatement is not likely, or determine that a material misstatement exists, is
guided by:
Information obtained from the practitioner’s evaluation of the results of the
procedures already performed;
The practitioner’s updated understanding of the entity and its environment
obtained throughout the course of the engagement; and
The practitioner’s view on the persuasiveness of evidence needed to
address the matter that causes the practitioner to believe that the financial
statements may be materially misstated.
A97. Additional procedures focus on obtaining sufficient appropriate evidence to
enable the practitioner to form a conclusion on matters that the practitioner
believes may cause the financial statements to be materially misstated. The
procedures may be:
Additional inquiry or analytical procedures, for example, being performed in
greater detail or being focused on the affected items (i.e. amounts or
disclosures concerning the affected accounts or transactions as reflected in
the financial statements); or
Other types of procedures, for example, substantive test of details or
external confirmations.
A98. The following example illustrates the practitioner’s evaluation of the need to
perform additional procedures, and the practitioner’s response when the
practitioner believes additional procedures are necessary.
In the course of performing the inquiry and analytical procedures for the
review, the practitioner’s analysis of accounts receivable shows a material
amount of past due accounts receivable, for which there is no allowance for
bad or doubtful debts.
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This causes the practitioner to believe that the accounts receivable balance
in the financial statements may be materially misstated. The practitioner
then inquires of management whether there are uncollectible accounts
receivable that would need to be shown as being impaired.
Depending on management’s response, the practitioner’s evaluation of the
response may:
(a) Enable the practitioner to conclude that the accounts receivable
balance is not likely to be materially misstated. In that case, no further
procedures are required.
(b) Enable the practitioner to determine that the matter causes the
financial statements to be materially misstated. No further procedures
are required, and the practitioner would form the conclusion that the
financial statements as a whole are materially misstated.
(c) Lead the practitioner to continue to believe that the accounts
receivable balance is likely to be materially misstated, while not
providing sufficient appropriate evidence for the practitioner to
determine that they are in fact misstated. In that case, the practitioner
is required to perform additional procedures, for example, requesting
from management an analysis of amounts received for those
accounts after the balance sheet date to identify uncollectible
accounts receivable. The evaluation of the results of the additional
procedures may enable the practitioner to get to (a) or (b) above. If
not, the practitioner is required to:
(i) Continue performing additional procedures until the practitioner
reaches either (a) or (b) above; or
(ii) If the practitioner is not able to either conclude that the matter is
not likely to cause the financial statements as a whole to be
materially misstated, or to determine that the matter does cause
the financial statements as a whole to be materially misstated,
then a scope limitation exists and the practitioner is not able to
form an unmodified conclusion on the financial statements.
Written Representations (Ref: Para. 61-63)
A99. Written representations are an important source of evidence in a review
engagement. If management modifies or does not provide the requested written
representations, it may alert the practitioner to the possibility that one or more
significant issues may exist. Further, a request for written, rather than oral,
representations in many cases may prompt management to consider such
matters more rigorously, thereby enhancing the quality of the representations.
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A100. In addition to the written representations required under this SRE, the
practitioner may consider it necessary to request other written representations
about the financial statements. These may be needed, for example, to complete
the practitioner’s evidence with respect to certain items or disclosures reflected in
the financial statements where the practitioner considers such representations to
be important in forming a conclusion on the financial statements on either a
modified or unmodified basis.
A101. In some cases, management may include in the written
representations qualifying language to the effect that representations are made
to the best of management’s knowledge and belief. It is reasonable for the
practitioner to accept such wording if the practitioner is satisfied that the
representations are being made by those with appropriate responsibilities and
knowledge of the matters included in the representations.
Evaluating Evidence Obtained from the Procedures Performed (Ref:
Para. 66-68)
A102. In some circumstances, the practitioner may not have obtained the
evidence that the practitioner had expected to obtain through the design of
primarily inquiry and analytical procedures and procedures addressing specific
circumstances. In these circumstances, the practitioner considers that the
evidence obtained from the procedures performed is not sufficient and
appropriate to be able to form a conclusion on the financial statements. The
practitioner may:
Extend the work performed; or
Perform other procedures judged by the practitioner to be necessary in the
circumstances.
Where neither of these is practicable in the circumstances, the practitioner will
not be able to obtain sufficient appropriate evidence to be able to form a
conclusion and is required by this SRE to determine the effect on the
practitioner’s report, or on the practitioner’s ability to complete the engagement,
for example, if a member of management is unavailable at the time of the review
to respond to the practitioner's inquiries on significant matters. This situation may
arise even though the practitioner has not become aware of a matter(s) that
causes the practitioner to believe the financial statements may be materially
misstated, as addressed in paragraph 57.
Scope Limitations
A103. Inability to perform a specific procedure does not constitute a
limitation on the scope of the review if the practitioner is able to obtain sufficient
appropriate evidence by performing other procedures.
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A104. Limitations on the scope of the review imposed by management may
have other implications for the review, such as for the practitioner’s consideration
of areas where the financial statements are likely to be materially misstated, and
engagement continuance.
Forming the Practitioner’s Conclusion on the Financial Statements
Description of the Applicable Financial Reporting Framework (Ref: Para.
69(a))
A105. The description of the applicable financial reporting framework in the
financial statements is important because it advises users of the financial
statements of the framework on which the financial statements are based. If the
financial statements are special purpose financial statements, they may be
prepared under a special purpose financial reporting framework that is available
only to the engaging party and the practitioner. Description of the special
purpose financial reporting framework used is important as the special purpose
financial statements may not be appropriate for any use other than the intended
use identified for the special purpose financial statements.
A106. A description of the applicable financial reporting framework that
contains imprecise qualifying or limiting language (for example, “the financial
statements are in substantial compliance with Accounting Standards issued by
the ICAI or Accounting Standards notified by the Central Government under the
Companies Act, 201312, or the Accounting Standards for Local Bodies issued by
the ICAI, as may be applicable”) is not an adequate description of that framework
as it may mislead users of the financial statements.
Disclosure of Effects of Material Transactions and Events on Information
Conveyed in the Financial Statements (Ref: Para. 69(b)(vi), 71)
A107. The practitioner is required under this SRE to evaluate whether the
financial statements provide adequate disclosures to enable the intended users
to understand the effect of material transactions and events on the entity’s
financial position, financial performance and cash flows.
A108. In the case of financial statements prepared in accordance with the
requirements of a fair presentation framework, management may need to include
additional disclosures in the financial statements beyond those specifically
required by the applicable financial reporting framework or, in extremely rare
circumstances, to depart from a requirement in the framework, in order to
achieve the fair presentation of the financial statements.
12 Read with the General Circular No. 15/2013 dated 13 th September 2013 issued by the Ministry of
Corporate Affairs.
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Considerations When a Compliance Framework is Used
A109. It will be extremely rare for the practitioner to consider financial
statements prepared in accordance with a compliance framework to be
misleading if, in accordance with this SRE, the practitioner has determined at the
time of engagement acceptance that the framework is acceptable.
Qualitative Aspects of the Entity’s Accounting Practices (Ref: Para. 70(b))
A110. In considering the qualitative aspects of the entity’s accounting
practices, the practitioner may become aware of possible bias in management’s
judgments. The practitioner may conclude that the cumulative effect of a lack of
neutrality, together with the effect of apparent uncorrected misstatements,
causes the financial statements as a whole to be materially misstated. Indicators
of a lack of neutrality that may affect the practitioner’s evaluation of whether the
financial statements as a whole may be materially misstated include the
following:
The selective correction of apparent misstatements brought to
management’s attention during the review (for example, correcting
misstatements with the effect of increasing reported earnings, but not
correcting misstatements that have the effect of decreasing reported
earnings).
Possible management bias in the making of accounting estimates.
A111. Indicators of possible management bias do not necessarily mean
there are misstatements for purposes of drawing conclusions on the
reasonableness of individual accounting estimates. They may, however, affect
the practitioner’s consideration of whether the financial statements as a whole
may be materially misstated.
Form of the Conclusion (Ref: Para. 74)
Description of the Information the Financial Statements Present
A112. In the case of financial statements prepared in accordance with a fair
presentation framework, the practitioner’s conclusion states that nothing has
come to the practitioner’s attention that causes the practitioner to believe that the
financial statements do not give a true and fair view of … (or do not present
fairly, in all material respects, …) in accordance with [the applicable fair
presentation framework]. In the case of many general purpose frameworks, for
example, the financial statements are required to give a true and fair view of (or
fairly present) the financial position of the entity as at the end of a period, and the
entity’s financial performance and cash flows for that period.
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“Gives a true and fair view” or “present fairly, in all material respects”
A113. Whether the phrase “gives a true and fair view” or the phrase “present
fairly, in all material respects,” is used in any particular entity is determined by
the law or regulation governing the review of financial statements of that entity, or
by generally accepted practice in that regard. Where the relevant law or
regulation requires the use of different wording, this does not affect the
requirement in this SREs for the practitioner to evaluate the fair presentation of
financial statements prepared in accordance with a fair presentation framework.
Inability to Form a Conclusion Due to a Management-Imposed Limitation
on the Scope of the Review after Engagement Acceptance (Ref: Para. 15,
82)
A114. The practicality of withdrawing from the engagement may depend on
the stage of completion of the engagement at the time that management
imposes the scope limitation. If the practitioner has substantially completed the
review, the practitioner may decide to complete the review to the extent possible,
disclaim a conclusion and explain the scope limitation in the paragraph in the
report that describes the basis for disclaiming a conclusion.
A115. In certain circumstances, withdrawal from the engagement may not be
possible if the practitioner is required by law or regulation to continue the
engagement. For example, this may be the case for a practitioner appointed to
review the financial statements of a public sector entity. It may also be the case
in entities where the practitioner is appointed to review the financial statements
covering a specific period, or appointed for a specific period, and is prohibited
from withdrawing before the completion of the review of those financial
statements or before the end of that period, respectively. The practitioner may
also consider it necessary to include an Other Matter paragraph in the
practitioner’s report to explain why it is not possible for the practitioner to
withdraw from the engagement.
Communication with Regulators or the Entity’s Owners
A116. When the practitioner concludes that withdrawal from the engagement
is necessary because of a scope limitation, there may be a professional, legal or
regulatory requirement for the practitioner to communicate matters relating to the
withdrawal from the engagement to regulators or the entity’s owners.
The Practitioner’s Report (Ref: Para. 86-92)
A117. The written report encompasses reports issued in hard copy format
and those using an electronic medium.
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Elements of the Practitioner’s Report (Ref: Para. 86)
A118. A title indicating the report is the report of an independent practitioner,
for example, “Independent Practitioner’s Review Report,” affirms that the
practitioner has met all of the relevant ethical requirements regarding
independence and, therefore, distinguishes the independent practitioner’s report
from reports issued by others.
A119. Law or regulation applicable to the entity may specify to whom the
practitioner’s report is to be addressed. The practitioner’s report is normally
addressed to those for whom the report is prepared, often either to the
shareholders or to those charged with governance of the entity whose financial
statements are being reviewed.
A120. When the practitioner is aware that the financial statements that have
been reviewed will be included in a document that contains other information,
such as a financial report, the practitioner may consider, if the form of
presentation allows, identifying the page numbers on which the financial
statements that have been reviewed are presented. This helps users to identify
the financial statements to which the practitioner’s report relates.
Management’s Responsibility for the Financial Statements (Ref: Para. 86(d))
A121. The requirement of this SRE that the practitioner must obtain
management’s agreement that it acknowledges and understands its
responsibilities, both in relation to the preparation of the financial statements and
in relation to the review engagement, is fundamental to performing the review
and reporting on the engagement. The description of management’s
responsibilities in the practitioner’s report provides context for readers of the
practitioner’s report about management’s responsibilities, as they relate to the
review engagement performed.
A122. The practitioner’s report need not refer specifically to “management”
but instead may use the term that is appropriate in the context of the legal
framework applicable to the entity. In some entities, the appropriate reference is
to those charged with governance of the entity.
A123. There may be circumstances when it is appropriate for the practitioner
to add to the description of management’s responsibilities as described in this
SRE to reflect additional responsibilities that are relevant to the preparation of
the financial statements in the context of law or regulation applicable to the
entity, or due to the type of entity.
A124. In some entities, law or regulation prescribing management’s
responsibilities may specifically refer to a responsibility for the adequacy of the
accounting books and records, or accounting system. As books, records and
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systems are an integral part of internal control, this SRE does not use these
descriptions or make any specific reference to them.
The Practitioner’s Responsibility (Ref: Para. 86(f))
A125. The practitioner’s report states that the practitioner’s responsibility is
to express a conclusion on the financial statements based on the review
performed, in order to contrast the practitioner’s responsibility with
management’s responsibility for preparation of the financial statements.
Reference to standards (Ref: Para. 86(f))
A126. The reference to the standards used by the practitioner for the review
conveys to the users of the practitioner’s report that the review has been
conducted in accordance with established standards.
Communication of the Nature of a Review of Financial Statements (Ref: Para.
86(g))
A127. The description of the nature of a review engagement in the
practitioner’s report explains the scope and limitations of the engagement
undertaken for the benefit of the readers of the report. This explanation clarifies,
for avoidance of doubt, that the review is not an audit and that accordingly, the
practitioner does not express an audit opinion on the financial statements.
Description of the Applicable Financial Reporting Framework and How it May
Affect the Practitioner’s Conclusion (Ref: Para. 86(h)(ii))
A128. The identification of the applicable financial reporting framework in the
practitioner’s conclusion is intended to advise users of the practitioner’s report of
the context in which that conclusion is expressed. It is not intended to limit the
evaluation required in paragraph 30(a). The applicable financial reporting
framework is identified in such terms as:
“… in accordance with the Financial Reporting Standards13 or
“… in accordance with accounting principles generally accepted in India …”
A129. When the applicable financial reporting framework encompasses
financial reporting standards and legal or regulatory requirements, the framework
is identified in terms such as “… in accordance with the Financial Reporting
Standards and the requirements of the applicable Act ….”
13 Accounting Standards issued by the ICAI or Accounting Standards notified by the Central
Government under the Companies Act, 2013 or Accounting Standards for Local Bodies issued by
the ICAI, as may be applicable.
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Basis for Modification Paragraph When the Conclusion is Modified (Ref: Para.
86(i)(ii))
A130. An adverse conclusion or a disclaimer of conclusion relating to a
specific matter described in the basis for modification paragraph does not justify
the omission of a description of other identified matters that would have
otherwise required a modification of the practitioner’s conclusion. In such cases,
the disclosure of such other matters of which the practitioner is aware may be
relevant to users of the financial statements.
Signature of the Practitioner (Ref: Para. 86(l))
A131. The report is signed by the practitioner who is the partner/ proprietor
in his personal name. Where the firm is appointed as the reviewer, the report is
signed in the personal name of the partner/ proprietor and in the name of the
firm. The partner/proprietor signing the review report also needs to mention the
membership number assigned by the Institute of Chartered Accountants of India.
They also include the registration number of the firm, wherever applicable, as
allotted by ICAI, in the review reports signed by them14.
Alerting Readers that the Financial Statements are Prepared in Accordance
with a Special Purpose Framework (Ref: Para. 88)
A132. The special purpose financial statements may be used for purposes
other than those for which they were intended. For example, a regulator may
require certain entities to place the special purpose financial statements on
public record. For avoidance of misunderstanding, it is important that the
practitioner alert users of the practitioner’s report that the financial statements
are prepared in accordance with a special purpose framework and, therefore,
may not be suitable for another purpose.
Restriction on Distribution or Use
A133. In addition to the alert to the reader of the practitioner’s report that is
required by this SRE when the financial statements are prepared using a special
14 The Council of the ICAI, at its 292 nd meeting held in January 2010, decided to require the
members of the ICAI to include, in addition to the other requirements relating to signature on the
audit report, as prescribed under the relevant Standard on Auditing, the registration number of
the firm as allotted by ICAI, in the audit reports signed by them, and ensure that the resolution
passed by the company regarding appointment of the statutory auditor of the company under
section 224 of the Companies Act, 1956, also contain the registration number of the firm of the
auditor(s) with the ICAI. These requirements came into effect from April 1, 2010. Subsequently,
the Council of the ICAI, at its 296 th meeting held in June 2010, decided to extend the
requirement to mention the firm registration number to all reports issued pursuant to any
attestation engagement, including certificates, issued by the members as proprietor of/ partner
in the said firm. The requirement applies where such firm registration number has been allotted
by the ICAI. The Council further decided to make this requirement effective for all attestation
reports/ certificates issued on or after 1 st October, 2010.
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purpose framework, the practitioner may consider it appropriate to indicate that
the practitioner’s report is intended solely for the specific users. Depending on
the law or regulation applicable to the entity, this may be achieved by restricting
the distribution or use of the practitioner’s report. In these circumstances, the
paragraph containing the alert about the use of a special purpose framework
may be expanded to include these other matters, and the heading modified
accordingly.
Other Reporting Responsibilities (Ref: Para. 91)
A134. In some cases, the practitioner may have additional responsibilities
under the relevant law or regulation to report on other matters that are
supplementary to the practitioner’s responsibility under this SRE. For example,
the practitioner may be asked to report certain matters if they come to the
practitioner’s attention during the course of the review of the financial statements.
Alternatively, the practitioner may be asked to perform and report on additional
specified procedures, or to express a conclusion on specific matters, such as the
adequacy of accounting books and records. Such law or regulation may provide
guidance on the practitioner’s responsibilities with respect to specific additional
reporting responsibilities.
A135. In some cases, the relevant law or regulation may require or permit
the practitioner to report on these other responsibilities within the practitioner’s
report on the financial statements. In other cases, the practitioner may be
required or permitted to report on them in a separate report.
A136. These other reporting responsibilities are addressed in a separate
section of the practitioner’s report, to clearly distinguish them from the
practitioner’s responsibility under this SRE to report on the financial statements.
Where relevant, this section may contain sub-heading(s) that describe(s) the
content of the other reporting responsibility paragraph(s). In some cases, the
additional reporting responsibilities may be addressed in a report that is separate
from the practitioner’s report provided for the review of the financial statements.
Date of the Practitioner’s Report (Ref: Para. 86(k), 92)
A137. The date of the practitioner’s report informs the user of the
practitioner’s report that the practitioner has considered the effect of events and
transactions of which the practitioner became aware and that occurred up to that
date.
A138. The practitioner’s conclusion is provided on the financial statements
and the financial statements are the responsibility of management. The
practitioner is not in a position to conclude that sufficient appropriate evidence
SRE 2400(Revised) 130
Handbook of Auditing Pronouncements-I.B
has been obtained until the practitioner is satisfied that all the statements that
comprise the financial statements, including the related notes, have been
prepared and management has accepted responsibility for them.
A139. In some entities, law or regulation identifies the individuals or bodies
(for example, the directors) that are responsible for concluding that all the
statements that comprise the financial statements, including the related notes,
have been prepared, and specifies the necessary approval process. In such
cases, evidence is obtained of that approval before dating the report on the
financial statements. In some entities, however, the approval process is not
prescribed in law or regulation. In such cases, the procedures the entity follows
in preparing and finalizing its financial statements in view of its management and
governance structures are considered in order to identify the individuals or body
with the authority to conclude that all the statements that comprise the financial
statements, including the related notes, have been prepared. In some cases, law
or regulation may identify the point in the financial statement reporting process at
which the review is expected to be complete.
A140. In some entities, final approval of the financial statements by
shareholders is required before the financial statements are issued publicly. In
these entities, final approval by shareholders is not necessary for the practitioner
to conclude on the financial statements. The date of approval of the financial
statements for purposes of this SRE is the earlier date on which those with the
recognized authority determine that all the statements that comprise the financial
statements, including the related notes, have been prepared and that those with
the recognized authority have asserted that they have taken responsibility for
them.
Practitioner’s Report Prescribed by Law or Regulation (Ref: Para. 34-35, 86)
A141. Consistency in the practitioner’s report, when the review has been
conducted in accordance with this SRE, promotes credibility in the global
marketplace by making more readily identifiable those reviews of financial
statements that have been conducted in accordance with globally recognized
standards. The practitioner’s report may refer to this SRE when the differences
between the legal or regulatory requirements and this SRE relate only to the
layout or wording of the practitioner’s report and, at a minimum, the report
complies with the requirements of paragraph 86 of this SRE. Accordingly, in such
circumstances the practitioner is considered to have complied with the
requirements of this SRE, even when the layout and wording used in the
practitioner’s report are specified by legal or regulatory reporting requirements.
Where specific requirements applicable to the entity do not conflict with this SRE,
131 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
adoption of the layout and wording used in this SRE assists users of the
practitioner’s report to more readily recognize the practitioner’s report as a report
on a review of financial statements conducted in accordance with this SRE.
Circumstances where law or regulation prescribes the layout or wording of the
practitioner’s report in terms that are significantly different from the requirements
of this SRE are addressed in the requirements of this SRE concerning
acceptance of review engagements and continuance of client relationships.
Practitioner’s Report for Reviews Conducted in Accordance with Both
Relevant Legal or Regulatory Requirements and this SRE (Ref: Para. 86(f))
A142. When, in addition to complying with the requirements of this SRE, the
practitioner also complies with other specific relevant legal or regulatory
requirements, governing the review engagement, the report may refer to the
review having been performed in accordance with both this SRE and such legal
or regulatory requirements for engagements to review financial statements.
However, a reference to both this SRE and such legal or regulatory requirements
is not appropriate if there is a conflict between the requirements of this SRE and
those legal or regulatory requirements that would lead the practitioner to form a
different conclusion or not to include an Emphasis of Matter paragraph that, in
the particular circumstances, would be required by this SRE. In such a case, the
practitioner’s report refers only to the relevant standards (either this SRE or the
relevant legal or regulatory requirements) in accordance with which the
practitioner’s report has been prepared.
Illustrative Review Reports (Ref: Para. 86)
A143. Appendix 2 to this SRE contains illustrations of practitioners’ reports
for a review of financial statements incorporating the reporting requirements of
this SRE.
Documentation
Timeliness of Engagement Documentation (Ref: Para. 93)
A144. SQC 1 requires the firm to establish time limits that reflect the need to
complete the assembly of final engagement files on a timely basis.
Material Modifications vis-a-vis ISRE 2400 (Revised),
“Engagements to Review Historical Financial Statements”
There are no material modifications in SRE 2400 (Revised) vis-à-vis ISRE 2400
(Revised), “Engagements to Review Historical Financial Statements”
SRE 2400(Revised) 132
Handbook of Auditing Pronouncements-I.B
Appendix 1
(Ref: Para. A55)
Illustrative Engagement Letter for an Engagement to
Review Historical Financial Statements
The following is an example of an engagement letter for a review of general
purpose financial statements (prepared in accordance with the applicable fair
presentation Financial Reporting Framework), which illustrates the relevant
requirements and guidance contained in this SRE. This letter is not authoritative
but is intended only to be a guide that may be used in conjunction with the
considerations outlined in this SRE. It will need to be varied according to
individual requirements and circumstances. It is drafted to refer to the review of
financial statements for a single reporting period and would require adaptation if
intended or expected to apply to recurring reviews. It may be appropriate to seek
legal advice that any proposed letter is suitable.
To the appropriate representative of management or those charged with
governance of ABC Company:15
[The objective and scope of the review]
You16 have requested that we review the general purpose financial statements of
ABC Company, which comprise the Balance Sheet as at March 31, 20XX, and
the Statement of Profit and Loss and Cash Flow Statement for the year then
ended, and a summary of significant accounting policies and other explanatory
information. We are pleased to confirm our acceptance and our understanding of
this review engagement by means of this letter.
Our review will be conducted with the objective of expressing our conclusion on
the financial statements. Our conclusion, if unmodified, will be in the form “Based
on our review, nothing has come to our attention that causes us to believe that
these financial statements do not give a true and fair view of (or do not present
fairly, in all material respects,) the financial position of the company as at [date]
and of its financial performance and cash flows for the year then ended in
accordance with [indicate the applicable financial reporting framework].”
[The practitioner’s responsibilities]
15 The addressees and references in the letter would be those that are appropriate in the
circumstances of the engagement. It is important to refer to the appropriate persons ― see
paragraph 36 of this SRE.
16 Throughout this letter, references to “you,” “we,” “us,” “management,” “those charged with
governance” and “practitioner” would be used or amended as appropriate in the circumstances.
133 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
We will conduct our review in accordance with Standard on Review
Engagements (SRE) 2400 (Revised), Engagements to Review Historical
Financial Statements. SRE 2400 (Revised) requires us to conclude whether
anything has come to our attention that causes us to believe that the financial
statements, taken as a whole, are not prepared in all material respects in
accordance with the applicable financial reporting framework. SRE 2400 also
requires us to comply with relevant ethical requirements.
A review of financial statements in accordance with SRE 2400(Revised) is a
limited assurance engagement. We will perform procedures, primarily consisting
of making inquiries of management and others within the entity, as appropriate,
and applying analytical procedures, and evaluate the evidence obtained. We will
also perform additional procedures if we become aware of matters that cause us
to believe the financial statements as a whole may be materially misstated.
These procedures are performed to enable us to express our conclusion on the
financial statements in accordance with SRE 2400(Revised). The procedures
selected will depend on what we consider necessary applying our professional
judgment, based on our understanding of ABC Company and its environment,
and our understanding of the applicable financial reporting framework and its
application in the industry context.
A review is not an audit of the financial statements, therefore:
(a) There is a commensurate higher risk than there would be in an audit, that
any material misstatements that exist in the financial statements reviewed
may not be revealed by the review, even though the review is properly
performed in accordance with SRE 2400 (Revised).
(b) In expressing our conclusion from the review of the financial statements,
our report on the financial statements will expressly disclaim any audit
opinion on the financial statements.
[The responsibilities of management and identification of the applicable financial
reporting framework (for purposes of this example, it is assumed that the
practitioner has not determined that the law or regulation prescribes those
responsibilities in appropriate terms; the descriptions in paragraph 30(b) of this
SRE are therefore used).]
Our review will be conducted on the basis that [management and, where
appropriate, those charged with governance]17 acknowledge and understand that
they have the responsibility:
(a) For the preparation of financial statements that give a true and fair view in
17 Use terminology as appropriate in the circumstances.
SRE 2400(Revised) 134
Handbook of Auditing Pronouncements-I.B
accordance with [indicate the applicable financial reporting framework];18
(b) For such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; and
(c) To provide us with:
(i) Access to all information of which management is aware that is
relevant to the preparation and fair presentation of the financial
statements, such as records, documentation and other matters;
(ii) Additional information that we may request from management for the
purpose of the review; and
(iii) Unrestricted access to persons within ABC Company from whom we
determine it necessary to obtain evidence.
As part of our review, we will request from [management and, where appropriate,
those charged with governance], written confirmation concerning representations
made to us in connection with the review.
We look forward to full cooperation from your staff during our review.
[Other relevant information]
[Insert other information, such as fee arrangements, billings and other specific
terms, as appropriate.]
[Reporting]
[Insert appropriate reference to the expected form and content of the
practitioner’s report.]
The form and content of our report may need to be amended in the light of our
findings obtained from the review.
Please sign and return the attached copy of this letter to indicate your
acknowledgement of, and agreement with, the arrangements for our review of
the financial statements including our respective responsibilities.
For XYZ and Co.,
Chartered Accountants
Firm’s Registration Number
18 Or, if appropriate, “For preparation and fair presentation of the financial statements in accordance
with [indicate the applicable financial reporting framework]”
135 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
Signature
(Name of Member signing the Review Report)
(Designation19)
Membership Number
Place of Signature
Date
Acknowledged on behalf of ABC Company by
(Signature)
Name and Designation
Date
19 Partner or proprietor, as the case may be.
SRE 2400(Revised) 136
Handbook of Auditing Pronouncements-I.B
Appendix 2
(Ref: Para. A143)
Illustrative Practitioners’ Review Reports
Review Reports on General Purpose Financial Statements
Illustrative Review Reports with Unmodified Conclusions
Illustration 1: A practitioner’s report on financial statements prepared in
accordance with a fair presentation framework designed to meet the common
financial information needs of a wide range of users (for example, Accounting
Standards referred to in the Companies Act, 2013).
Illustrative Review Reports with Modified Conclusions
Illustration 2: A practitioner’s report containing a qualified conclusion due to an
apparent material misstatement of the financial statements. Financial statements
prepared in accordance with a compliance framework designed to meet the
common information needs of a wide range of users. (Financial statements
prepared using a compliance framework)
Illustration 3: A practitioner’s report containing a qualified conclusion due to
the practitioner’s inability to obtain sufficient appropriate evidence. (Financial
statements prepared using a fair presentation framework)
Illustration 4: A practitioner’s report containing an adverse conclusion due to
material misstatement of the financial statements. (Financial statements
prepared using a fair presentation framework)
Illustration 5: A practitioner’s report containing a disclaimer of conclusion due
to the practitioner’s inability to obtain sufficient appropriate evidence about
multiple elements of the financial statements resulting in inability to complete the
review. (Financial statements prepared using a fair presentation framework)
Review Reports on Special Purpose Financial Statements
Illustration 6: A practitioner’s report on financial statements prepared in
accordance with the financial reporting provisions of a contract (for purposes of
this illustration, a compliance framework).
Illustration 7: A practitioner’s report on a single financial statement prepared in
accordance with the cash receipts and disbursements basis of accounting (for
purposes of this illustration, a fair presentation framework).
137 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
Illustration 1
Circumstances include the following:
Review of a complete set of financial statements.
The financial statements are prepared for a general purpose by
management of the entity under the Companies Act, 2013 financial reporting
framework, designed to achieve fair presentation
The terms of the review engagement reflect the description of
management’s responsibility for the financial statements in paragraph 30(b)
of this SRE.
In addition to the review of the financial statements, the practitioner has
other reporting responsibilities under the law.
INDEPENDENT PRACTITIONER’S REVIEW REPORT
[Appropriate Addressee]
Report on the Financial Statements20
We have reviewed the accompanying financial statements of ABC Company,
which comprise the Balance Sheet as at March 31, 20XX, and the Statement of
Profit and Loss and Cash Flow Statement for the year then ended, and a
summary of significant accounting policies and other explanatory information.
Management’s21 Responsibility for the Financial Statements
Management is responsible for the preparation of financial statements that give a
true and fair view in accordance with the Accounting Standards referred to in the
Companies Act, 2013 (the Act) and other accounting principles generally
accepted in India22, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
Practitioner’s Responsibility
Our responsibility is to express a conclusion on the accompanying financial
20 The sub-title “Report on the Financial Statements” is unnecessary in circumstances when the
second sub-title “Report on Other Legal and Regulatory Requirements” is not applicable.
21 Or other term that is appropriate in the context of the legal framework applicable to the particular
entity.
22 Where management is responsible for the preparation and fair presentation of financial statements,
this may read: “Management is responsible for the preparation and fair presentation of these financial
statements in accordance with the Accounting Standards referred to in the Companies Act, 2013 (the
Act) and other accounting principles generally accepted in India, and for such …”
SRE 2400(Revised) 138
Handbook of Auditing Pronouncements-I.B
statements. We conducted our review in accordance with Standard on Review
Engagements (SRE) 2400 (Revised), Engagements to Review Historical
Financial Statements. SRE 2400 (Revised) requires us to conclude whether
anything has come to our attention that causes us to believe that the financial
statements, taken as a whole, are not prepared in all material respects in
accordance with the applicable financial reporting framework. This Standard also
requires us to comply with relevant ethical requirements.
A review of financial statements in accordance with SRE 2400 (Revised) is a
limited assurance engagement. The practitioner performs procedures, primarily
consisting of making inquiries of management and others within the entity, as
appropriate, and applying analytical procedures, and evaluates the evidence
obtained.
The procedures performed in a review are substantially less than those
performed in an audit conducted in accordance with Standards on Auditing.
Accordingly, we do not express an audit opinion on these financial statements.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that these financial statements do not give a true and fair view of (or present
fairly, in all material respects,) the financial position of ABC Company as at
March 31, 20XX, and of its financial performance and cash flows for the year
then ended, in accordance with the Accounting Standards referred to in the
Companies Act, 2013 and other accounting principles generally accepted in
India.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the practitioner’s report will vary depending
on the nature of the practitioner’s other reporting responsibilities.]
For XYZ and Co.,
Chartered Accountants
Firm’s Registration Number
Signature
(Name of Member signing the Review Report)
(Designation23)
Membership Number
Place of Signature
Date
23 Partner or proprietor, as the case may be.
139 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
Illustration 2
Circumstances include the following:
Review of a complete set of financial statements required by law or
regulation.
The financial statements are prepared for a general purpose by
management of the entity in accordance with the Financial Reporting
Framework (DEF Law) (that is, a financial reporting framework,
encompassing law or regulation, designed to meet the common financial
information needs of a wide range of users, but which is not a fair
presentation framework).
The terms of the review engagement reflect the description of
management’s responsibility for the financial statements in paragraph 30(b)
of this SRE.
Based on the review, inventories are misstated. The misstatement is
material but not pervasive to the financial statements.
In addition to the review of the financial statements, the practitioner has
other reporting responsibilities under the law.
INDEPENDENT PRACTITIONER’S REVIEW REPORT
[Appropriate Addressee]
Report on the Financial Statements24
We have reviewed the accompanying financial statements of ABC Company,
which comprise the Balance Sheet as at March 31, 20XX, and the Statement of
Profit and Loss and Cash Flow Statement for the year then ended, and a
summary of significant accounting policies and other explanatory information.
Management’s25 Responsibility for the Financial Statements
Management is responsible for the preparation of these financial statements in
accordance with DEF Law, and for such internal control as management
determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
24 The sub-title “Report on the Financial Statements” is unnecessary in circumstances when the
second sub-title “Report on Other Legal and Regulatory Requirements” is not applicable.
25 Or other term that is appropriate in the context of the legal framework applicable to the particular
entity.
SRE 2400(Revised) 140
Handbook of Auditing Pronouncements-I.B
Practitioner’s Responsibility
Our responsibility is to express a conclusion on the accompanying financial
statements. We conducted our review in accordance with Standard on Review
Engagements (SRE) 2400 (Revised), Engagements to Review Historical
Financial Statements. SRE 2400 (Revised) requires us to conclude whether
anything has come to our attention that causes us to believe that the financial
statements, taken as a whole, are not prepared in all material respects in
accordance with the applicable financial reporting framework. This Standard also
requires us to comply with relevant ethical requirements.
A review of financial statements in accordance with SRE 2400 (Revised) is a
limited assurance engagement. The practitioner performs procedures, primarily
consisting of making inquiries of management and others within the entity, as
appropriate, and applying analytical procedures, and evaluates the evidence
obtained.
The procedures performed in a review are substantially less than those
performed in an audit conducted in accordance with Standards on Auditing.
Accordingly, we do not express an audit opinion on these financial statements.
Basis for Qualified Conclusion
The company’s inventories are carried in the Balance Sheet at Rs. XXX.
Management has not stated the inventories at the lower of cost and net
realizable value but has stated them solely at cost, which constitutes a departure
from the requirements of the Financial Reporting Framework (DEF Law). The
company’s records indicate that, had management stated the inventories at the
lower of cost and net realizable value, an amount of Rs. XXX would have been
required to write the inventories down to their net realizable value. Accordingly,
cost of sales would have been increased by Rs. XXX, and income tax, net
income and shareholders’ equity would have been reduced by Rs. XXX, XXX
and XXX, respectively.
Qualified Conclusion
Based on our review, except for the effects of the matter described in the Basis
for Qualified Conclusion paragraph, nothing has come to our attention that
causes us to believe that the financial statements of ABC Company are not
prepared, in all material respects, in accordance with the Financial Reporting
Framework (DEF Law).
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the practitioner’s report will vary depending
on the nature of the practitioner’s other reporting responsibilities.]
141 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
For XYZ and Co.,
Chartered Accountants
Firm’s Registration Number
Signature
(Name of Member signing the Review Report)
(Designation26)
Membership Number
Place of Signature
Date
26 Partner or proprietor, as the case may be.
SRE 2400(Revised) 142
Handbook of Auditing Pronouncements-I.B
Illustration 3
Circumstances include the following:
Review of a complete set of general purpose financial statements prepared
by management of the entity under the Companies Act, 2013 financial
reporting framework, designed to achieve fair presentation.
The terms of the review engagement reflect the description of
management’s responsibility for the financial statements in paragraph 30(b)
of this SRE.
The practitioner was unable to obtain sufficient appropriate evidence
regarding an investment in a foreign affiliate. The possible effects of the
inability to obtain sufficient appropriate evidence are deemed to be material
but not pervasive to the financial statements.
The practitioner does not have other reporting responsibilities under the law
in addition to the review of the consolidated financial statements.
INDEPENDENT PRACTITIONER’S REVIEW REPORT
[Appropriate Addressee]
We have reviewed the accompanying financial statements of ABC Company,
which comprise the Balance Sheet as at March 31, 20XX, and the Statement of
Profit and Loss and Cash Flow Statement for the year then ended, and a
summary of significant accounting policies and other explanatory information.
Management’s27 Responsibility for the Financial Statements
Management is responsible for the preparation of financial statements that give a
true and fair view in accordance with the Accounting Standards referred to in the
Companies Act, 2013 (the Act) and other accounting principles generally
accepted in India,28 and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
27 Or other term that is appropriate in the context of the legal framework applicable to the particular
entity.
28 Where management is responsible for the preparation and fair presentation of financial
statements, this may read: “Management is responsible for the preparation and fair presentation of
these financial statements in accordance with the Accounting Standards referred to in Companies
Act, 2013 (the Act) and other accounting principles generally accepted in India, and for such …”
143 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
Practitioner’s Responsibility
Our responsibility is to express a conclusion on the accompanying financial
statements. We conducted our review in accordance with Standard on Review
Engagements (SRE) 2400 (Revised), Engagements to Review Historical
Financial Statements. SRE 2400 (Revised) requires us to conclude whether
anything has come to our attention that causes us to believe that the financial
statements, taken as a whole, are not prepared in all material respects in
accordance with the applicable financial reporting framework. This Standard also
requires us to comply with relevant ethical requirements.
A review of financial statements in accordance with SRE 2400 (Revised) is a
limited assurance engagement. The practitioner performs procedures, primarily
consisting of making inquiries of management and others within the entity, as
appropriate, and applying analytical procedures, and evaluates the evidence
obtained.
The procedures performed in a review are substantially less than those
performed in an audit conducted in accordance with Standards on Auditing.
Accordingly, we do not express an audit opinion on these financial statements.
Basis for Qualified Conclusion
ABC Company’s investment in DEF Company, a foreign associate acquired
during the year and accounted for by the equity method, is carried at Rs. XXX on
the Balance Sheet as at March 31, 20XX, and ABC’s share of DEF ’s net income
of Rs. XXX is included in ABC’s income for the year then ended. We were unable
to obtain access to the relevant financial information of DEF concerning the
carrying amount of ABC’s investment in DEF as at March 31, 20XX and ABC’s
share of DEF’s net income for the year. Consequently, we were unable to
perform the procedures we considered necessary.
Qualified Conclusion
Based on our review, except for the possible effects of the matter described in
the Basis for Qualified Conclusion paragraph, nothing has come to our attention
that causes us to believe that the accompanying financial statements do not give
a true and fair view of (or do not present fairly, in all material respects ) the
financial position of ABC Company as at March 31, 20XX, and of its financial
performance and cash flows for the year then ended in accordance with the
Accounting Standards referred to in Companies Act, 2013 and other accounting
principles generally accepted in India.
SRE 2400(Revised) 144
Handbook of Auditing Pronouncements-I.B
For XYZ and Co.,
Chartered Accountants
Firm’s Registration Number
Signature
(Name of Member signing the Review Report)
(Designation29)
Membership Number
Place of Signature
Date
29 Partner or proprietor, as the case may be.
145 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
Illustration 4
Circumstances include the following:
Review of consolidated general purpose financial statements prepared by
management of the parent under the accounting principles generally
accepted in India (as required for compliance with SEBI’s regulatory
requirements), designed to achieve fair presentation .
The terms of the review engagement reflect the description of
management’s responsibility for the financial statements in paragraph 30(b)
of this SRE.
The financial statements are materially misstated due to the non-
consolidation of a subsidiary. The material misstatement is deemed to be
pervasive to the financial statements. The effects of the misstatement on the
financial statements have not been determined because it was not
practicable to do so.
The practitioner does not have other reporting responsibilities under the law
in addition to the review of the consolidated financial statements.
INDEPENDENT PRACTITIONER’S REVIEW REPORT
[Appropriate Addressee]
We have reviewed the accompanying consolidated financial statements of ABC
Company, which comprise the consolidated Balance Sheet as at March 31,
20XX, and the consolidated Statement of Profit and Loss and Cash Flow
Statement for the year then ended, and a summary of significant accounting
policies and other explanatory information.
Management’s30 Responsibility for the Financial Statements
Management is responsible for the preparation of these consolidated financial
statements that give a true and fair view in accordance with the accounting
principles generally accepted in India,31 and for such internal control as
management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to
fraud or error.
30 Or other term that is appropriate in the context of the legal framework applicable to the particular
entity.
31 Where management is responsible for the preparation and fair presentation of financial
statements, this may read: “Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with the accounting principles generally
accepted in India , and for such …”
SRE 2400(Revised) 146
Handbook of Auditing Pronouncements-I.B
Practitioner’s Responsibility
Our responsibility is to express a conclusion on the accompanying consolidated
financial statements. We conducted our review in accordance with Standard on
Review Engagements (SRE) 2400 (Revised), Engagements to Review Historical
Financial Statements. SRE 2400 (Revised) requires us to conclude whether
anything has come to our attention that causes us to believe that the
consolidated financial statements, taken as a whole, are not prepared in all
material respects in accordance with the applicable financial reporting
framework. This Standard also requires us to comply with relevant ethical
requirements.
A review of consolidated financial statements in accordance with SRE 2400
(Revised) is a limited assurance engagement. The practitioner performs
procedures, primarily consisting of making inquiries of management and others
within the entity, as appropriate, and applying analytical procedures, and
evaluates the evidence obtained.
The procedures performed in a review are substantially less than those
performed in an audit conducted in accordance with Standards on Auditing.
Accordingly, we do not express an audit opinion on these consolidated financial
statements.
Basis for Adverse Conclusion
As explained in Note X to the Financial Statements, the company has not
consolidated the financial statements of subsidiary DEF Company it acquired
during 20XX because the financial statements of this subsidiary company have
not been prepared by its management. This investment is therefore accounted
for on a cost basis. Under the accounting principles generally accepted in India,
the subsidiary should have been consolidated because it is controlled by the
company. Had DEF been consolidated, many elements in the accompanying
financial statements would have been materially affected.
Adverse Conclusion
Based on our review, due to the significance of the matter discussed in the Basis
for Adverse Conclusion paragraph, the consolidated financial statements do not
give a true and fair view of (or do not present fairly) the financial position of ABC
Company and its subsidiaries as at March 31, 20XX, and of their financial
performance and cash flows for the year then ended in accordance with the
accounting principles generally accepted in India.
For XYZ and Co.,
Chartered Accountants
147 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
Firm’s Registration Number
Signature
(Name of Member signing the Review Report)
(Designation32)
Membership Number
Place of Signature
Date
32 Partner or proprietor, as the case may be.
SRE 2400(Revised) 148
Handbook of Auditing Pronouncements-I.B
Illustration 5
Circumstances include the following:
Review of a complete set of general purpose financial statements prepared
by management of the entity under the Companies Act, 2013 financial
reporting framework, designed to achieve fair presentation.
The terms of the review engagement reflect the description of
management’s responsibility for the financial statements in paragraph 30(b)
of this SRE.
The practitioner was unable to form a conclusion on the financial
statements, due to inability to obtain sufficient appropriate evidence about
multiple elements of the financial statements, and the practitioner believes
the effect is material and pervasive to the financial statements. Specifically,
the practitioner was unable to obtain evidence about the entity’s physical
inventory and accounts receivable.
INDEPENDENT PRACTITIONER’S REVIEW REPORT
[Appropriate Addressee]
We were engaged to review the accompanying financial statements of ABC
Company, which comprise the Balance Sheet as at March 31, 20XX, and the
Statement of Profit and Loss and Cash Flow Statement for the year then ended,
and a summary of significant accounting policies and other explanatory
information.
Management’s33 Responsibility for the Financial Statements
Management is responsible for the preparation of financial statements that give a
true and fair view in accordance with the Accounting Standards referred to in the
Companies Act, 2013 (the Act) and other accounting principles generally
accepted in India,34 and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
Practitioner’s Responsibility
Our responsibility is to express a conclusion on the accompanying financial
33 Or other term that is appropriate in the context of the legal framework applicable to the particular
entity.
34 Where management is responsible for the preparation and fair presentation of financial
statements, this may read: “Management is responsible for the preparation and fair presentation
of these financial statements in accordance with the Accounting Standards referred to in the
Companies Act, 2013 and other accounting principles generally accepted in India, and for such
…”
149 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
statements. Because of the matter(s) described in the Basis for Disclaimer of
Conclusion paragraph, however, we were not able to obtain sufficient appropriate
evidence as a basis for expressing a conclusion on the financial statements.
Basis for Disclaimer of Conclusion
Management did not conduct a count of physical inventory on hand at the end of
the year. We were unable to perform the procedures we considered necessary
concerning the inventory quantities held at March 31, 20XX, which are stated at
Rs. XXX in the Balance Sheet at March 31, 20XX.
In addition, the introduction of a new computerized accounts receivable system
in January 20XX resulted in numerous errors in accounts receivable and
inventory. As of the date of our report, management was still in the process of
rectifying the system deficiencies and correcting the errors.
As a result of these matters, we were unable to determine whether any
adjustments might have been found necessary in respect of recorded or
unrecorded inventories and accounts receivable, and the elements making up
the Statement of Profit and Loss and Cash Flow Statement.
Disclaimer of Conclusion
Due to the significance of the matters described in the Basis for Disclaimer of
Conclusion paragraph, we were unable to obtain sufficient appropriate evidence
to form a conclusion on the accompanying financial statements. Accordingly, we
do not express a conclusion on these financial statements.
For XYZ and Co.,
Chartered Accountants
Firm’s Registration Number
Signature
(Name of Member signing the Review Report)
(Designation35)
Membership Number
Place of Signature
Date
35 Partner or proprietor, as the case may be.
SRE 2400(Revised) 150
Handbook of Auditing Pronouncements-I.B
Illustration 6
Circumstances include the following:
The financial statements have been prepared by management of the entity
in accordance with the financial reporting provisions of a contract (that is, a
special purpose framework), to comply with the provisions of the contract.
Management does not have a choice of financial reporting frameworks.
The applicable financial reporting framework is a compliance framework.
The terms of the review engagement reflect the description of
management’s responsibility for the financial statements in paragraph 30(b)
of this SRE.
Distribution or use of the practitioner’s report is restricted.
INDEPENDENT PRACTITIONER’S REVIEW REPORT
[Appropriate Addressee]
We have reviewed the accompanying financial statements of ABC Company,
which comprise the balance sheet as at March 31, 20XX, and the Statement of
Profit and Loss and Cash Flow Statement for the year then ended, and a
summary of significant accounting policies and other explanatory information.
The financial statements have been prepared by management of ABC Company
based on the financial reporting provisions of Section Z of the contract dated
January 1, 20XX between ABC Company and DEF Company (“the contract”).
Management’s36 Responsibility for the Financial Statements
Management is responsible for the preparation of these financial statements in
accordance with the financial reporting provisions of Section Z of the contract,
and for such internal control as management determines is necessary to enable
the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
Practitioner’s Responsibility
Our responsibility is to express a conclusion on the accompanying financial
statements. We conducted our review in accordance with Standard on Review
Engagements (SRE) 2400(Revised), Engagements to Review Historical
Financial Statements. SRE 2400 (Revised) requires us to conclude whether
anything has come to our attention that causes us to believe that the financial
statements, taken as a whole, are not prepared in all material respects in
36 Or other term that is appropriate in the context of the legal framework applicable to the particular
entity.
151 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
accordance with the applicable financial reporting framework. This Standard also
requires us to comply with relevant ethical requirements.
A review of financial statements in accordance with SRE 2400(Revised) is a
limited assurance engagement. The practitioner performs procedures, primarily
consisting of making inquiries of management and others within the entity, as
appropriate, and applying analytical procedures, and evaluates the evidence
obtained.
The procedures performed in a review are substantially less than those
performed in an audit conducted in accordance with Standards on Auditing.
Accordingly, we do not express an audit opinion on these financial statements.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that these financial statements are not prepared, in all material respects, in
accordance with the financial reporting provisions of Section Z of the contract.
Basis of Accounting, and Restriction on Distribution and Use
Without modifying our conclusion, we draw attention to Note X to the financial
statements, which describes the basis of accounting. The financial statements
are prepared to assist ABC Company to comply with the financial reporting
provisions of the contract referred to above. As a result, the financial statements
may not be suitable for another purpose. Our report is intended solely for ABC
Company and DEF Company and should not be distributed to or used by parties
other than ABC Company or DEF Company.
For XYZ and Co.,
Chartered Accountants
Firm’s Registration Number
Signature
(Name of Member signing the Review Report)
(Designation37)
Membership Number
Place of Signature
Date
37 Partner or proprietor, as the case may be.
SRE 2400(Revised) 152
Handbook of Auditing Pronouncements-I.B
Illustration 7
Circumstances include the following:
Review of a statement of cash receipts and disbursements.
The financial statement has been prepared by management of the entity in
accordance with the cash receipts and disbursements basis of accounting to
respond to a request for cash flow information received from a creditor. The
basis of accounting applied to prepare the financial statement has been
agreed between the entity and the creditor.
The applicable financial reporting framework is a fair presentation framework
designed to meet the financial information needs of specific users.
The practitioner has determined that it is appropriate to use the phrase
“presents fairly, in all material respects,” in the practitioner’s conclusion.
The terms of the review engagement reflect the description of
management’s responsibility for the financial statement in paragraph 30(b)
of this SRE.
Distribution or use of the practitioner’s report is not restricted.
INDEPENDENT PRACTITIONER’S REVIEW REPORT
[Appropriate Addressee]
We have reviewed the accompanying statement of cash receipts and
disbursements of ABC Company for the year ended March 31, 20XX, and a
summary of significant accounting policies and other explanatory information
(together “the financial statement”). The financial statement has been prepared
by management of ABC Company using the cash receipts and disbursements
basis of accounting described in Note X to the financial statement.
Management’s38 Responsibility for the Financial Statement
Management is responsible for the preparation and fair presentation of this
financial statement in accordance with the cash receipts and disbursements
basis of accounting described in Note X, and for such internal control as
management determines is necessary to enable the preparation of the financial
statement that is free from material misstatement, whether due to fraud or error.
Practitioner’s Responsibility
Our responsibility is to express a conclusion on the accompanying financial
statement. We conducted our review in accordance with Standard on Review
38 Or other term that is appropriate in the context of the legal framework applicable to the particular
entity.
153 SRE 2400(Revised)
Handbook on Auditing Pronouncements-I.B
Engagements (SRE) 2400 (Revised), Engagements to Review Historical
Financial Statements. SRE 2400 (Revised) requires us to conclude whether
anything has come to our attention that causes us to believe that the financial
statement is not prepared in all material respects in accordance with the
applicable financial reporting framework. This Standard also requires us to
comply with relevant ethical requirements.
A review of financial statements in accordance with SRE 2400 (Revised) is a
limited assurance engagement. The practitioner performs procedures, primarily
consisting of making inquiries of management and others within the entity, as
appropriate, and applying analytical procedures, and evaluates the evidence
obtained.
The procedures performed in a review are substantially less than those
performed in an audit conducted in accordance with Standards on Auditing.
Accordingly, we do not express an audit opinion on this financial statement.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the financial statement does not present fairly, in all material respects, (or
does not give a true and fair view of) the cash receipts and disbursements of
ABC Company for the year ended March 31, 20XX in accordance with the cash
receipts and disbursements basis of accounting described in Note X.
Basis of Accounting
Without modifying our conclusion, we draw attention to Note X to the financial
statement, which describes the basis of accounting. The financial statement is
prepared to provide information to DEF Creditor. As a result, the financial
statement may not be suitable for another purpose.
For XYZ and Co.,
Chartered Accountants
Firm’s Registration Number
Signature
(Name of Member signing the Review Report)
(Designation39)
Membership Number
Place of Signature
Date
39 Partner or proprietor, as the case may be.
SRE 2400(Revised) 154