Of help is the International Auditing and Assurance Standards Board’s International Standard on Review Engagements (ISRE) 2400 (Revised), Engagements to Review Historical Financial Statements, issued in September 2012. Effective for periods ending on or after 31 December 2013, the revised standard includes strengthened requirements and additional guidance, and promotes a clearer understanding of the nature of a review engagement.
Merits of a review engagement
A review is a limited assurance engagement, which means it provides a level of assurance between that of an audit (a reasonable assurance engagement) and a compilation engagement (an engagement providing no assurance). ISRE 2400 (Revised) is designed to not only provide an effective and consistent level of limited assurance on financial statements but also allow for efficient delivery of the service proportionate to the complexity of the statements reviewed.
SMEs that do not require a statutory audit may still want some degree of independent assurance to increase the credibility of their statements, in which case a review can be an ideal solution.
Additionally, since the work effort involved in performing a review engagement is generally less than that in conducting an audit, a review should be a more cost-effective option.
When to conduct a review engagement
Under the standard, a practitioner can only perform a review when there is both a rational purpose and when a review engagement is appropriate in the circumstances. What constitutes a rational purpose?
A common example would be when a review, as opposed to an audit, will satisfy legal or regulatory reporting purposes. An engagement without a rational purpose, for example, is one in which there is a significant limitation in the scope of the practitioner’s work when management unreasonably restricts the practitioner’s inquiries to specified individuals.
When would a review engagement be considered ‘appropriate in the circumstances’? When a practitioner believes engagement risk can be reduced to an acceptable level. A review may not be appropriate, for example, for complex entities, such as banks or insurance companies, when inquiry and analytical procedures alone may not reduce engagement risk sufficiently. In these cases, an audit engagement may be more appropriate.
