International Federation of Accountants



For the attention of Mr James GunnTechnical DirectorInternational Auditing and Assurance Standards Board545 Fifth Avenue, 14th FloorNew York, New York, 10017USA20 May 2011Dear SirIAASB Exposure Draft – International Standard on Review Engagements (ISRE) 2400 (Revised), ‘Engagements to review historical financial statements’We appreciate the opportunity to comment on the IAASB’s proposed International Standard on Review Engagements (ISRE) 2400 (Revised), ‘Engagements to review historical financial statements’. Following extensive consultation with members of the PwC network of firms, this response summarises the views of member firms who commented on this Exposure Draft. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.Overall commentsWe support the proposed revision of the ISRE. Review engagements are common in some jurisdictions but relatively rare in others. However, moves by legislators in many jurisdictions to raise thresholds for mandatory audits of financial statements, or to introduce exemptions from audit, may lead to an increase in demand for review engagements from those entities wishing to obtain some form of assurance on their financial statements, absent the requirement for an audit. Therefore, we believe that this standard will play an increasingly important role in meeting those needs and consider the proposed revision to also be timely in demonstrating the IAASB’s efforts to address the needs of Small and Medium sized Entities (SMEs), and the users of SME financial statements. We believe that the revisions to the requirements detailing the work effort of the practitioner, in the context of the revised objective of a review engagement, will serve to enhance understanding amongst practitioners of the nature and scope of a review engagement and the extent of the work effort necessary to convey the appropriate conclusion. Furthermore, the proposals in respect of the content of the practitioner’s report should also help create an improved understanding amongst users of the distinguishing features of such engagements, as compared to an audit or a compilation engagement. Sufficient and appropriate evidenceWe question whether it is necessary to refer to the “sufficiency and appropriateness” of evidence obtained in a review engagement. We believe that the inclusion of this term will potentially be problematic if there is an expectation that the practitioner must “conclude” whether sufficient appropriate evidence has been obtained. Our reasoning is as follows:It will be difficult for the practitioner to conclude “how much evidence is enough”, i.e. whether a specific level of evidence is needed to support the conclusion, as a separate and distinct step because the exposure draft does not establish a benchmark for the specific level of assurance that must be obtained. We believe that the requirements and application material in the standard can be applied without the inclusion of this term. In fact, we would suggest that the language used in paragraph 48 of the standard, which describes the practitioner’s evaluation of evidence in the context of “determining whether it is necessary to perform additional procedures if the results obtained do not adequately address areas in the financial statements where material misstatement are likely to arise”, is more direct and avoids potential ambiguity surrounding the overall “quantity” of evidence to be obtained. This is also more consistent with the language used in paragraphs A83 and A84, which discuss whether the procedures performed “provide an adequate basis for a conclusion”.We believe it is more important to focus on an assessment of whether the results of the procedures are such that the practitioner is able to conclude whether the financial statements are likely to be materially misstated than to create undue focus on how much evidence might be needed behind that conclusion. This is also consistent with paragraph A96, which discusses the “practitioner’s evaluation of the results of the procedures performed”.We have therefore suggested amendments, in the appendix of this letter, to replace use of “sufficient and appropriate”, and derivations thereof, throughout the standard with language based on that described in the penultimate bullet above.Our detailed comments in response to the specific questions raised in the exposure draft are set out below. We have also provided some specific suggestions for the Board to consider in the appendix to this letter. We encourage the IAASB to address these comments in finalising proposed ISRE 2400 (Revised).Request for specific comments1. Do respondents who are users or preparers of financial statements believe the proposed ISRE will result in an assurance engagement that is meaningful?We believe that the enhancements to the standard and practitioner’s report should provide a basis for a better understanding by users and preparers of the nature and extent of work involved in a review engagement and, therefore, may become more widely requested in the future (given current trends in legislation on statutory audits). 2. Do respondents who are practitioners believe that proposed ISRE 2400 will result in engagements that can be understood and performed by practitioners in a cost-effective manner in a way that clearly distinguishes the engagement from an audit?We believe that the requirements setting out the procedures to be performed by the practitioner, their clear relationship to the overall objective of the engagement, and the extent of such procedures in the context of a potential material misstatement, sufficiently differentiate a review engagement from an audit. The types of procedures to be performed, and when, are clearly communicated and, in our view, provides a better understanding for the practitioner of the extent of procedures necessary to appropriately respond to areas of potential material misstatement of the financial statements. This should help practitioners to deliver cost-effective engagements.3. Do respondents believe that the objectives stated in the proposed ISRE appropriately describe the expected outcome of the practitioner’s work in a review engagement and the means by which the objectives are to be achieved? Is there any wording in the objectives that might have unintended consequences, or that may blur understanding of the difference between a review and an audit?We broadly support the wording used in the proposed objective. It is helpful to emphasise the types of procedures that are typically performed (inquiry and analytical procedures) directly within the objective, because it usefully contributes to understanding the distinction between a review and an audit. The expected outcome is also clear in that it conveys the negative form of conclusion to be drawn. However, please refer to our comments in the ‘overall comments’ section of this letter regarding our views on the use of the phrase “sufficient appropriate evidence”. 4. Do respondents believe that the factors affecting engagement acceptance and continuance, and the preconditions for performing a review under the proposed ISRE, are appropriate and clearly communicated in the proposed ISRE?We believe the factors affecting acceptance and continuance, and preconditions for a review engagement, are appropriate and clearly communicated within the proposed standard. Some minor wording amendments have been suggested in the appendix to this letter.5. The approach to performing a review set out in the proposed ISRE (paragraphs 43 and 44) requires the practitioner to identify areas in the financial statements where material misstatements are likely to arise, based on the practitioner’s understanding of the entity and its environment, and the applicable financial reporting framework, and then to focus the design and performance of inquiry and analytical procedures in those areas.(a) Do respondents believe this approach is appropriate for a review?(b) Do respondents believe that the requirement and guidance in the proposed ISRE adequately convey this intended approach?(c) Do respondents believe that the requirements and guidance relating to the practitioner’s understanding (explained in paragraph 43), and designing and performing inquiry and analytical procedures (explained in paragraph 44), are sufficient to promote performance of reviews on a reasonably consistent basis with the application of the practitioner’s professional judgment and understanding, taking account of the circumstances in individual review engagements?We believe that the approach defined in paragraphs 43 and 44 is sensible. Understanding the entity and its environment and the applicable financial reporting framework should clearly direct the practitioner to areas of the financial statements that carry a greater risk of material misstatement and, therefore, provides a basis for designing appropriate inquiries and analytical procedures to address those areas. We have, however, suggested one proposed amendment, in the appendix to this letter, to address the potential risk that the term ‘likely’ could be misinterpreted. We believe additional guidance that explains this term in the context of the practitioner’s understanding of the entity would be a helpful clarification.The requirements are clearly written and, in our view, should lead to a more consistent approach by practitioners in conducting review engagements. The subsequent requirements in paragraphs 45-47 of the proposed standard, setting out specific areas that the practitioner’s procedures are to address, will further provide a level of consistency in approach.6. Do respondents agree with the requirements and guidance in the proposed ISRE (paragraphs 57 and 58) describing the trigger point at which additional procedures are required? Do respondents agree with the related requirements concerning the practitioner’s response when there are matters that cause the practitioner to believe the financial statements may be materially misstated?Although there is a risk that “may be” could be seen as setting too low a bar, we acknowledge that this is only triggered when a matter comes to the practitioner’s attention. We agree with the IAASB’s view that when the practitioner has cause to believe the financial statements may be materially misstated, it would be appropriate in those circumstances for the practitioner to perform additional procedures. A more judgmental quantitative measure, such as ‘more likely than not’, would be unhelpful and may imply a level of precision in the practitioner’s judgement that is not attainable in practice.Having determined that the financial statements ‘may be’ materially misstated, we note that the results of those additional procedures require the practitioner to conclude that the matter(s) are ‘not likely’ to cause the financial statements as a whole to be materially misstated, or does cause them to be materially misstated. We support this distinction on the basis that it is appropriate to apply a lower threshold where there is belief that a material misstatement could exist. Having made that decision, such additional procedures should then provide greater information, allowing the practitioner to form a more robust assessment of whether that matter does, in fact, cause the financial statements as a whole to be materially misstated, or is not likely to.7. With respect to the practitioner’s review report (as illustrated in Appendix 2 of the proposed ISRE):(a) Do respondents believe the report adequately communicates to users the work undertaken by the practitioner for the review?(b) Do respondents believe that the form of the practitioner’s conclusion (that is, “nothing has come to the practitioner’s attention that causes the practitioner to believe …”) communicates adequately the assurance obtained by the practitioner? Is this form of wording of the practitioner’s conclusion preferable to other forms that have been explored by the IAASB as discussed above, including those that use wording perceived as being more positive? If not, please explain and provide alternative wording that could be used to express the practitioner’s conclusion.(c) Is the practitioner’s conclusion expressed in this form likely to be understandable and meaningful to users of the financial statements? Does this form of conclusion achieve the intended purpose of properly differentiating the conclusion reported in a review from the opinion expressed in an audit of financial statements?We support the proposed wording of the practitioner’s report. The description of the nature of a review engagement is appropriate and sufficiently conveys the nature and extent of procedures performed by the practitioner. We also believe that a conclusion regarding whether anything has come to the practitioner’s attention remains appropriate and support the IAASB’s assessment that the alternative forms of wording would give rise to greater potential for misunderstanding amongst users. We have, however, proposed some wording amendments based on our comments regarding the use of the phrase “sufficient appropriate evidence”.We believe the form of conclusion is sufficiently differentiated from the opinion given on an audit of financial statements to enable users to understand this difference.Effective dateWe consider the proposed effective date to be acceptable, on the assumption that the IAASB continues its normal practice of permitting early adoption.Other CommentsWe would be happy to discuss our views further with you. If you have any questions regarding this letter, please contact Deian Tecwyn (+44 207 212 3695) or Jamie Shannon (+44 141 355 4225).Yours faithfully,PricewaterhouseCoopers LLPAppendixWe encourage the IAASB to address the following matters in finalising proposed ISRE 2400 (Revised).ParagraphCommentPara 2We recommend that the application material in paragraph A57 (as amended by our comment) replace current paragraph A2, as it helps put in context a common situation likely to arise in practice. Refer also to our comment on paragraph A2.Para 4Refer to our comment on paragraph 26.Paras 7 & A11Based on our comments in the main body of this letter we suggest the words “sufficient appropriate” be deleted from these paragraphs when referring to obtaining evidence and be replaced with the following additional wording:“…to obtain sufficient appropriate evidence, that adequately addresses areas in the financial statements where material misstatements are likely to arise, as the basis for forming a conclusion….”. Para 14(a)Based on our comments in the main body of this letter, we recommend the phrase “sufficiency and appropriateness of” be deleted from the objective as shown:“The practitioner’s objectives in conducting a review of financial statements are:(a) To conclude, through performing primarily inquiry and analytical procedures, and evaluating the sufficiency and appropriateness of evidence obtained, 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(b) To report on the financial statements as a whole, and communicate as required by this ISRE.”Para 17We suggest that a definition of ‘other information’ be included if a new requirement is added in line with our recommendation. Please refer to our comment on paragraph 65. Paras 24-26We recommend that these paragraphs be moved to follow the requirements on acceptance and continuance (paragraphs 27-39). It appears more logical to us that such requirements are discussed only once a decision has been taken on the appropriate acceptance of an engagement and, in doing so, we believe the related application guidance can be streamlined (refer to subsequent comments on paragraphs A31-A33). This change would also align this standard with the order of requirements in the exposure draft of ISAE 3000 (Revised). We have included at the end of this appendix a list of other recommended changes to align the standard with the exposure draft of ISAE 3000 (Revised) where, in our opinion, matters have been better dealt with in that standard.Para 24 (a) (i)We suggest the second part of this sentence can be deleted, as shown, on the basis that management integrity is addressed in paragraph 29(d) and this is therefore duplicative: “(i) Being satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and engagements are followed, including considering whether there is information that would lead the engagement partner to conclude that management lacks integrity;”Furthermore, the related application guidance is written in the context of engagement acceptance and not engagement quality control. Therefore, if the engagement quality control requirements are moved to follow the acceptance and continuance requirements, as suggested above, then the practitioner’s consideration of management integrity will have been sufficiently dealt with prior to consideration of these requirements. Para 26We recommend that paragraphs A6-A8 be linked to this paragraph rather than to paragraph 4. These paragraphs are designed to explain to the practitioner how the results of firm wide quality control policies and procedures are to be used and assessed in the context of engagement level quality control and should therefore be linked to the engagement level requirement.Para 31We suggest this paragraph is re-drafted to remove duplication with paragraph 29:“If the preconditions for a review engagement are not present, the practitioner shall discuss the matter with management, and the engaging party if different. If to determine if changes cannot be made to meet the preconditions. , the practitioner shall not accept the engagement unless required by law or regulation to do so. However, aAn engagement conducted in accordance with law or regulation, where the preconditions for a review engagement are not present, under such circumstances does not comply with this ISRE.”Para 35 (a)We suggest that a reference to paragraph A57 be added (which may be relocated to paragraph A2 based on our comment). Including the reference from this requirement is relevant in the context of the scope of work requested by a group engagement team.Para 43We believe there is scope for the term ‘likely’ to be misinterpreted when identifying areas of the financial statements where material misstatements are likely to arise. We support the IAASB in not providing any explicit quantitative definition of likely. However, we suggest that it would be appropriate to provide application material that explains what this term means in the context of the practitioner’s assessment. For example, the practitioner’s assessment is based on consideration of the inherent risk of areas of the financial statements, e.g., complexity, in combination with any entity specific information that comes to his/her attention during obtaining an understanding of the entity and its environment. It is the practitioner’s judgement, having considered the balance of this information, that drives the determination of those areas of the financial statements where material misstatements are considered ‘likely’ to arise, and is primarily based on the practitioner’s intuition rather than an evaluation of the results of detailed review procedures. Paras 48 & 57We believe that paragraph 48 is incorrectly located. We suggest that such an assessment should come after completion of all procedures that are required in all engagements and therefore should follow paragraphs 49-56. This is also the order in which the related application material is presented. We therefore recommend that this paragraph be combined with paragraph 57 and, in addition, be revised as follows:“Additional Procedures When the Practitioner Becomes Aware that the Financial Statements May Be Materially Misstated57. If the practitioner:i) does not obtain evidence from initial inquiry and analytical procedures that adequately addresses areas in the financial statements where material misstatements are likely to arise; orii) 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: (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.”Para 55While recognising that the use of another practitioner, or a practitioner’s expert, will be relatively rare, if the requirement is retained we recommend that some application material be provided that, at a minimum, reminds the practitioner of their responsibilities for evaluating the independence and objectivity of the other practitioner or expert and for evaluating their work.Para 58Please refer to our comment on paragraphs 48 & 57. Based on our revised paragraph 57 we would recommend that the following sentence also be added to the end of this paragraph:If the practitioner is unable to obtain necessary further evidence, the practitioner shall consider the implications for the practitioner’s conclusion in paragraph 69.Para 61We suggest the following additional wording, as shown:“If, in relation to the written representations required under paragraphs 59 and 60,:(a) …(b)…the practitioner shall discuss the matter with management and those charged with governance, as appropriate, including the implications for the practitioner’s report, and if management continue to refuse to provide required representations,(i) Disclaim a conclusion on the financial statements; or(ii) Withdraw from the engagement if permitted by law or regulation.”Para 65We believe that there should be a separate requirement, located after paragraph 65, in respect of reading other information that is included in documents containing the financial statements and practitioner’s report, to identify material inconsistencies between that other information and the financial statements or the practitioner’s report.Para 67 (a)We believe that this requirement should refer to ‘uncorrected’ rather than ‘unadjusted’ misstatements.Para 69 Refer to our comment on paragraphs 7 & A11, which we suggest can also be applied to this paragraph, as shown:“If the practitioner is not able to obtain sufficient appropriate evidence, that adequately addresses areas in the financial statements where material misstatements are likely to arise, as a basis for to forming a conclusion on the financial statements, the practitioner shall…..:”Para 71 (b)We suggest the following revised wording, consistent with our other comments on sufficient appropriate evidence:“(b) The practitioner is unable to obtain sufficient appropriate evidence, that adequately addresses in relation to one or more specific items in the financial statements that are material in relation to the financial statements as a whole, as the basis for forming a conclusion.”Para 73We suggest the opening sentence is circular to the remainder of the requirement i.e., the requirement explains the type of modified conclusion to be expressed. Therefore the report does not yet “contain” a modified conclusion. We suggest this sentence could be made clearer as follows:Where the practitioner determines that a modified conclusion is necessary in the circumstances:(a) The practitioner shall express…..Para 74We suggest that this paragraph is unnecessary and could be deleted. Paragraph 82 (h) includes identical requirements. Paras 75, 77 & 79We suggest that it would be helpful to identify an alternative format for the headings ‘qualified conclusions’, ‘adverse conclusions’ and ‘disclaiming a conclusion’. These are in-effect sub-headings under the heading of ‘modified conclusions’ and would avoid potential misunderstanding of the relationship between these terms.Para 76 (a)(i) & (iii) & Para 77 (a) & (c)We suggest that guidance be provided to help the practitioner assess when describing and quantifying a misstatement, or including omitted disclosures, would be ‘impracticable’. For example, when information necessary to quantify the effect or compile such disclosures is not available or where the inclusion of omitted disclosures would result in a practitioner’s report of unacceptable length.Para 79Refer to our comment on paragraphs 7 & A11. We recommend this paragraph is modified as shown:“The practitioner shall disclaim a conclusion on the financial statements when the practitioner: is unable to obtain sufficient appropriate evidence, that adequately addresses areas in the financial statements where material misstatements are likely to arise, as the basis for forming a conclusion on the financial statements,; and determines that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. In such circumstances, due to the significance of scope limitations, the practitioner is unable to form a conclusion on the financial statements.”Para 80We suggest this paragraph be re-drafted as follows:“When the practitioner disclaims a conclusion on the financial statements due to inability to obtain sufficient appropriate evidence as the basis for a conclusion on those financial statements in accordance with paragraph 79, the practitioner shall state in the conclusion paragraph that:(a) Because of Due to the significance of the matter(s)……”Para 81Refer to our comment on paragraphs 7 & A11. We recommend this paragraph is modified as shown:“If the practitioner is unable to obtain sufficient appropriate evidence, that adequately addresses areas in the financial statements where material misstatements are likely to arise, as the basis for forming a conclusion on the financial statements because of a……”Para 82 (f) (iii)We recommend the following wording changes:“(iii) A statement of the practitioner’s belief that the practitioner has obtained sufficient appropriate evidence as the that provides a basis for the conclusion expressed; ora. If the practitioner’s conclusion is qualified or adverse, that the practitioner has obtained sufficient appropriate evidence as the that provides a basis for the practitioner’s modified conclusion; orb. If the practitioner disclaims a conclusion, the following statement: “Our responsibility is to express a conclusion on the financial statements based on performing the review in accordance with ISRE 2400. Because of Due to the matter(s) described in the Basis for Disclaimer of Conclusion paragraph, however, we are not able to obtain sufficient appropriate evidence to form a conclusion;””Paras 83 (a) & 84We recommend deleting the words “sufficient appropriate” from both these paragraphs, amending the wording consistent with our comment on paragraphs 7 & A11:Para 83 (a) - “In a review engagement, the practitioner performs procedures to obtain sufficient appropriate evidence, that adequately addresses areas in the financial statements where material misstatements are likely to arise, as the basis for concluding on the financial statements as a whole”Para 84 – “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, that adequately addresses areas in the financial statements where material misstatements are likely to arise, to be able to conclude that the matter is not likely to be materially misstated as presented in the financial statements.”Para 89We recommend the following wording changes:“The practitioner shall date the report no earlier than the date on which the practitioner has obtained sufficient appropriate evidence, that adequately addresses areas in the financial statements where material misstatements are likely to arise, as the basis for the practitioner’s conclusion on the financial statements, including being satisfied that….:”Para A2Refer to our comment on paragraph 2. We believe this paragraph is unclear and does not provide useful guidance to further explain the point being made in the requirement. We recommend that paragraph A57 (as modified by our comment) replace this.Paras A12 (b) & A13Refer to our comment on paragraphs 7 & A11. We suggest these paragraphs be modified as follows:Para A12 (b) – “The practitioner is unable to obtain sufficient appropriate evidence, that adequately addresses areas in the financial statements where material misstatements are likely to arise, as the basis for forming a conclusion on the financial statements, and providing a qualified conclusion on the financial statements is insufficient in the circumstances for the purpose of reporting to the intended users of the financial statements.”Para A13 – “An inability to obtain sufficient appropriate evidence (also referred to as a limitation on the scope of the review) may arise from….:”Para A21We recommend “sufficiency and appropriateness of” be deleted from the final sentence.Para A25We recommend the following wording changes in the following bullets to this paragraph:“The nature, timing, and extent of procedures used to meet the requirements of this ISRE and to gather evidence. Evaluating whether sufficient appropriate evidence has been obtained, and whether more needs to be done to achieve the objectives of the practitioner under this ISRE.Drawing tThe appropriate conclusion to draw on the financial statements based on the evidence obtained, including considering the reasonableness of the estimates made by management in preparing the financial statements.”Paras A31 & A32In connection with our comments on paragraphs 24-26, we suggest that the first sentence in paragraph A31 be moved to become the first sentence of paragraph A34 and the first sentence of paragraph A33 moved to become the first sentence of paragraph A19. This better reflects the underlying nature of the application material in these paragraphs (acceptance and continuance and ethical requirements). We believe the remaining content in paragraphs A31-A33 to be unnecessary and repetitive of content dealt with elsewhere in the standard.Para A40We suggest that it would be helpful to put this guidance into context by explaining on what basis the practitioner would be in a position to conclude that, were an audit to be performed, they would likely qualify, disclaim or express an adverse conclusion. An example, illustrating in what circumstances, and on what basis, the practitioner might reach this determination, would be useful.Para A41We suggest the following amended and additional wording to reflect the different consequences of deficiencies in accounting systems:“When the practitioner’s preliminary understanding of the engagement circumstances indicates that a review engagement is not appropriate, the practitioner may recommend that another type of engagement be undertaken. For example, the existence of significant shortcomings or deficiencies in the entity’s accounting systems may make performance of a review inappropriate. In that circumstance, the practitioner may consider recommending performance of another type of engagement. , fFor example, as long as the underlying source documents are available, the practitioner may be able to perform a compilation engagement, as being more appropriate, in view of the intended use, or the needs of the intended users, of the financial statements.”Para A57We recommend aligning this paragraph more closely with paragraph A52 of ISA 600. This recommended change is based on the assumption this paragraph is moved to replace paragraph A2:“The auditor of a set of group financial statements may request a review of a component within a group of entities to be performed. A review of the financial information of a component may be performed in accordance with this ISRE or, where the component auditor is also the auditor of the component entity’s financial statements, in accordance with International Standard on Review Engagements (ISRE) 2410, adapted as necessary in the circumstances of the group audit engagement. The engagement team for the audit of the group financial statements may also specify additional procedures to supplement the work done for the review performed under this ISRE.”Para A82Refer to our comment on paragraphs 7 & A11. We recommend this paragraph is modified as shown:“The planned nature, timing and extent of the procedures the practitioner considers are needed to obtain sufficient appropriate evidence, that adequately addresses areas in the financial statements where material misstatements are likely to arise, as the basis for forming a conclusion on the financial statements as a whole are influenced by….:”Paras A100 & A112We recommend that the words “sufficient appropriate” be deleted from both these paragraphs.Para A139We suggest the following revised wording:“The practitioner is not in a position to conclude that sufficient appropriate evidence has been obtained, that adequately addresses areas in the financial statements where material misstatements are likely to arise, 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.”Para A141We suggest the following revised wording for the second sentence in this paragraph:“In these jurisdictions, final approval by shareholders is not necessary for the practitioner to conclude on the financial statements conclude that sufficient appropriate evidence has been obtained.”Appendix 1In the second paragraph of the illustrative engagement letter we suggest that the example wording of the conclusion needs to be extended to refer to the financial position and financial performance of the company, as the structure of the sentence does not work as currently drafted i.e., it does not explain what is “presented fairly”:“Our review will be conducted with the objective of expressing our conclusion on the financial statements, that is “Based on our review, nothing has come to our attention that causes us to believe that these financial statements do not present fairly, in all material respects, (or do not give a true and fair view of) the financial position of the company as at [date] and its financial performance for the year then ended in accordance with International Financial Reporting Standards (IFRS).””In the fourth paragraph, we recommend the following change:“A review of financial statements in accordance with ISRE 2400 consists primarily of making inquiries of management and others within the entity involved in financial and accounting matters, applying analytical procedures and evaluating the sufficiency and appropriateness of evidence obtained.”We recommend the following revised wording for the introduction to the fifth paragraph:“As we are engaged to review the financial statements and A review is not an audit of the financial statements, therefore….:”Appendix 2We recommend deletion of the words “sufficient appropriate” from the description of illustrations 3 and 5 on pages 72, 77 and 81. The description of illustration 3, on page 72, and example qualified conclusion on page 78, incorrectly refers to an ‘opinion’ instead of a ‘conclusion’.Appendix 2, all illustrations (other than illustration 5)We recommend the following amendments to the paragraphs describing the practitioner’s responsibilities:“A review of financial statements in accordance with ISRE 2400 consists primarily of making inquiries of management and others within the entity involved in financial and accounting matters, applying analytical procedures, and evaluating the sufficiency and appropriateness of evidence obtained. A review also requires performance of additional procedures when the practitioner becomes aware of matters that cause the practitioner to believe the financial statements as a whole may be materially misstated.We believe that the evidence we have obtained in our review is sufficient and appropriate to provides a basis for our conclusion.”Appendix 2, illustrations 3We recommend that the following revised wording for the middle sentence of the basis for qualified conclusion paragraph:“We were unable to obtain sufficient appropriate evidence, that adequately addressed the risk of material misstatement in about the carrying amount of ABC’s investment in XYZ as at December 31, 20X1 and ABC’s share of XYZ’s net income for the year because we were denied access to the relevant financial information of XYZ.Appendix 2, illustrations 5We recommend that the following revised wording for the disclaimer of conclusion paragraph:“Because of Due to the significance of the matters described in the Basis for Disclaimer of Conclusion paragraph, we were unable to obtain sufficient appropriate evidence, that adequately addressed areas in the financial statements where material misstatements are likely to arise, as a basis for expression of a conclusion on the accompanying financial statements. Accordingly, we do not express a conclusion on these financial statements.”Recommended changes to align the standard with the exposure draft of ISAE 3000 (Revised)We believe the following matters, that are common to both standards, have been addressed more appropriately in the exposure draft of ISAE 3000 (Revised) and recommend that ISRE 2400 (Revised) be amended to be consistent.ParagraphCommentPara 17We recommend the inclusion of definitions of professional skepticism and professional judgment.Para 24 (a) (iii)We recommend the following change to this sentence:“(iii) Directing, supervising, planning and performing the review engagement in to achieve compliance with professional standards and applicable legal and regulatory requirements;”We also recommend that a further element be added to this requirement, together with its related application material, in respect of engagement review, based on the following requirement included in the exposure draft of ISAE 3000 (Revised) (paragraph 29(c)):“Reviews being performed in accordance with the firm’s review policies and procedures, and reviewing the engagement documentation on or before the date of the assurance report.”Para 27We suggest this paragraph be re-drafted as follows:“The practitioner engagement partner shall be satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and review engagements have been followed, and shall determine that conclusions reached in this regard are appropriate.”Para 28We suggest that this paragraph would be better located after requirement 29, which discusses the relevant factors that affect acceptance and continuance, as this puts into context the type of information that the engagement partner might subsequently obtain. We also recommend that a reference to paragraph 32 be added to the end of the sentence. Para 29We suggest that an additional element be added to the list of factors affecting engagement acceptance and continuance, as follows:(f) The practitioner has reason to believe that relevant ethical requirements, including independence, will not be satisfied.Para 29 (b)We suggest that a two part requirement would be appropriate here, and draw upon the wording used in the exposure draft of ISAE 3000 (Revised). We feel it is important to reflect the mutual understanding of responsibilities and that management have an appropriate understanding of what the review engagement is designed to achieve:“(b) The basis upon which the engagement is to be performed is not agreed with management or those charged with governance through:(i) Establishing that the preconditions for a review engagement are present; and(ii) Confirming that there is a common understanding between the practitioner and management or those charged with governance of the terms of the engagement, including the practitioner’s reporting responsibilities.”Para 78We suggest that the requirement in paragraph 66 of the exposure draft of ISAE 3000 (Revised), that deals with the circumstances where there is a modified conclusion arising from a limitation on scope and the practitioner is also aware of a material misstatement(s), should also be included following this paragraph.Para 90We recommend inclusion of the word ‘timely’ in the last sentence of this requirement as follows:“The practitioner shall document the following aspects of the engagement in a timely manner, sufficient to….”We also suggest it would be appropriate to include application material related to quality control and assembly of the final engagement file.Para A5We recommend that the application material in paragraph A59 of the exposure draft of ISAE 3000 (Revised), describing other professional requirements that are at least as demanding as ISQC1, be included immediately following this paragraph.Para A22We recommend that “contradicts” be replaced with ‘that is inconsistent with’ and “brings” be replaced with ‘calls’, in the first and second bullets respectively.Para A29We suggest the following amended and additional wording:“Professional judgment needs to be exercised throughout the review and is not to be used as the justification for decisions that are not otherwise supported by the facts and circumstances of the engagement or sufficient appropriate evidence obtained. It also needs to be appropriately documented (refer to paragraph 90).”Para A73We recommend the following paragraph be inserted following the bullet list:Unless the engagement has been designed 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.Para A74We recommend that some form of guidance, explaining that materiality is considered in the context of qualitative as well as quantitative factors, be included. For example, paragraphs A87 and some elements from A88 in the exposure draft of ISAE 3000 (Revised) may be helpful.Para A132We recommend the following wording changes:“The practitioner’s signature is either in the name of the practitioner’s firm, the personal name of the individual practitioner, or both, as appropriate for the particular jurisdiction. In addition to the practitioner’s signature, in certain jurisdictions, the practitioner may be required to make a declaratione in the practitioner’s report about the practitioner’s professional accountancy designations or the fact that the practitioner or firm, as appropriate, has been recognitionzed by the appropriate licensing authority in that jurisdiction.” ................
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