(Ref: Para. 1–2) 

In performing a review of financial statements, the assurance practitioner may be required to comply with legal or regulatory requirements, which may differ from the requirements established in this ASRE.  While the assurance practitioner may find aspects of this ASRE helpful in these circumstances, it is the responsibility of the assurance 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

Review engagements in accordance with this ASRE may be requested for component entities by the auditor of the financial statements of a group of entities.^[6]  Such a review engagement performed in accordance with this ASRE 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 ASQM 1 (Ref: Para. 4)

ASQM 1 deals with the firm’s responsibilities to design, implement and operate a system of quality management for assurance engagements, including review engagements.^[8] ASQM 1 also deals with the firm’s responsibility to establish policies or procedures addressing engagements that are required to be subject to engagement quality reviews.^[9] ASQM 2 deals with the appointment and eligibility of the engagement quality reviewer, and the performance and documentation of the engagement quality review.^[10]

A system of quality management addresses the following eight components:^[11]

1. The firm’s risk assessment process;
2. Governance and leadership;
3. Relevant ethical requirements;
4. Acceptance and continuance of client relationships and specific engagements;
5. Engagement performance;
6. Resources;
7. Information and communication; and
8. The monitoring and remediation process.

Firms or national requirements may use different terminology or frameworks to describe the components of the system of quality management.

Under ASQM 1, the objective of the firm is to design, implement and operate a system of quality management for assurance engagements, including reviews of financial reports, that provides the firm with reasonable assurance that:

1. The firm and its personnel fulfill their responsibilities in accordance with professional standards and applicable legal and regulatory requirements, and conduct engagements in accordance with such standards and requirements; and
2. Engagement reports issued by the firm or engagement partners are appropriate in the circumstances.^[12]

[Deleted by the AUASB.  Refer Aus A5.1]

ASQM 1 contains requirements which are at least as demanding as its international equivalent, ISQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements,^[*]as it addresses the requirements of ISQM 1 and imposes obligations on the firm to achieve the objective of ISQM 1.

(Ref: Para. 5–8, 14)

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 jurisdictions, the review of financial statements of certain types of entity may also be the subject of laws or regulations and related reporting requirements.

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.

(Ref: Para. 15) 

This ASRE requires the assurance practitioner to disclaim a conclusion on the financial statements if:

1. The assurance practitioner issues a report, or is required to issue a report for the engagement; and
2. The assurance practitioner is unable to form a conclusion on the financial statements due to inability to obtain sufficient appropriate evidence, and the assurance practitioner concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

The situation of being unable to obtain sufficient appropriate evidence in a review engagement (referred to as a scope limitation) may arise from:

1. Circumstances beyond the control of the entity;
2. Circumstances relating to the nature or timing of the assurance practitioner’s work; or
3. Limitations imposed by management or those charged with governance of the entity.

This ASRE sets out requirements and guidance for the assurance practitioner when the assurance practitioner encounters a scope limitation, either prior to accepting a review engagement, or during the engagement.

(Ref: Para. 16) 

Use of the Terms “Management” and “Those Charged with Governance”

The respective responsibilities of management and those charged with governance will differ between jurisdictions, and between entities of various types.  These differences affect the way the assurance practitioner applies the requirements of this ASRE 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 ASRE is intended to alert the assurance practitioner to the fact that different entity environments may have different management and governance structures and arrangements.

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 jurisdictions, the responsibility for preparation of financial statements for an entity is the legal responsibility of those charged with governance, and in some other jurisdictions it is a management responsibility.

Limited Assurance – Use of the Term Sufficient Appropriate Evidence (Ref: Para. 17(f))

Sufficient appropriate evidence is required to obtain limited assurance to support the assurance practitioner’s conclusion. Evidence is cumulative in nature and is primarily obtained from the procedures performed during the course of the review.

(Ref: Para. 18) 

This ASRE 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 ASRE, a review conducted only in accordance with laws and regulations will not automatically comply with this ASRE.

(Ref: Para. 21)

[Deleted by the AUASB. Refer Aus A15.1]

The fundamental principles of ethics referred to in ASA 102 are:

1. Integrity;
2. Objectivity;
3. Professional competence and due care;
4. Confidentiality; and
5. Professional behaviour.

The fundamental principles of ethics establish the standard of behaviour expected of an assurance practitioner. Relevant ethical requirements provide a conceptual framework which to apply in order to identify, evaluate and address threats to compliance with the fundamental principles.

In the case of an engagement to review financial statements, the assurance practitioner is to be independent of the entity whose financial statements are reviewed.  Independence is described as comprising both independence of mind and independence in appearance.  The assurance practitioner’s independence safeguards the assurance practitioner’s ability to form a conclusion without being affected by influences that might otherwise compromise that conclusion.  Independence enhances the assurance practitioner’s ability to act with integrity, to be objective and to maintain an attitude of professional scepticism.

Professional Scepticism (Ref: Para. 22)

Professional scepticism 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 enquiries 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.

Professional scepticism 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 enquiries to be used as evidence.
• Conditions that may indicate possible fraud.
• Any other circumstances that suggest the need for additional procedures.

Maintaining professional scepticism throughout the review is necessary if the assurance practitioner is to reduce the risks of:

• Overlooking unusual circumstances.
• Over-generalising 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.

The assurance 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 assurance practitioner of the need to maintain professional scepticism or allow the assurance practitioner to be satisfied with evidence that is inadequate for the purpose of the review.

Professional Judgement (Ref: Para. 23)

Professional judgement is essential to the proper conduct of a review engagement. This is because interpretation of relevant ethical requirements and the requirements of this ASRE, 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 judgement is necessary, in particular:

• Regarding decisions about materiality, and the nature, timing, and extent of procedures used to meet the requirements of this ASRE, 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 judgements 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.

The distinguishing feature of the professional judgement expected of the assurance practitioner is that it is exercised by an assurance 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 judgements.  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 assurance practitioner in making informed and reasonable judgements.

The exercise of professional judgement in individual engagements is based on the facts and circumstances that are known by the assurance practitioner throughout the engagement, including:

• Knowledge acquired from engagements carried out with respect to the entity’s financial statements in prior periods, where applicable.
• The assurance 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 judgement.

Professional judgement can be evaluated based on whether the judgement 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 assurance practitioner up to the date of the assurance practitioner’s report.

Professional judgement needs to be exercised throughout the engagement.  It also needs to be appropriately documented in accordance with the requirements of this ASRE.  Professional judgement 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.

(Ref: Para. 24–25)

Assurance skills and techniques include:

• Applying professional scepticism and professional judgement 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 enquiry 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.

Within the context of the firm’s system of quality management, engagement teams have a responsibility to implement the firm’s policies or procedures applicable to the engagement, and communicate to the firm information arising from the review engagement that is required to be communicated by the firm’s policies or procedures to support the firm’s system of quality management.

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 overall responsibility for managing and achieving 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:

1. Performing work that complies with professional standards and regulatory and legal requirements.
2. Complying with the firm’s quality management policies or procedures as applicable.
3. Issuing a report for the engagement that is appropriate in the circumstances.
4. The engagement team’s ability to raise concerns without fear of reprisals.

Ordinarily, the engagement team may depend on the firm’s system of quality management unless:

• The engagement team’s understanding or practical experience indicates that the firm’s policies or procedures will not effectively address the nature and circumstances of the engagement; or
• Information provided by the firm or other parties about the effectiveness of such policies or procedures suggests otherwise.

For example, the engagement team may depend on the firm’s system of quality management in relation to:

• Competence and capabilities of personnel through their recruitment and formal training.
• Independence through the accumulation and communication of relevant independence information.
• Maintenance of client relationships through the firm's policies or procedures for acceptance and continuance of client relationships and review engagements.
• Adherence to regulatory and legal requirements through the firm's monitoring and remediation process.

In considering deficiencies^[13] identified in the firm’s system of quality management that may affect the review engagement, the engagement partner may consider the remedial actions undertaken by the firm to address those deficiencies.

A deficiency in the firm’s system of quality management does not necessarily indicate that a review engagement was not performed in accordance with this Standard on Review Engagements, relevant ethical requirements and applicable legal and regulatory requirements, or that the assurance practitioner’s report was not appropriate.

Assignment of Engagement Teams (Ref: Para. 25(b))

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:

• 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 specialised areas of accounting or assurance.
• Knowledge of relevant industries in which the client operates.
• Ability to apply professional judgement.
• Understanding of the firm’s quality management policies or procedures.

Acceptance and Continuance of Client Relationships and Review Engagements (Ref: Para. 25(d)(i))

ASQM 1^[14] requires the firm to establish quality objectives that address the acceptance and continuance of client relationships and review engagements. Information that assists the engagement partner in determining whether the firm’s policies or procedures for the acceptance and continuance of client relationships and review engagements have been followed, and that conclusions reached 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.

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 ASRE to accept the engagement, unless required by law or regulation, as doing so may lead to the assurance practitioner being associated with the entity’s financial statements in an inappropriate manner.

(Ref: Para. 29)

The assurance practitioner’s consideration of acceptance and continuance of client relationships and review engagements, and relevant ethical requirements, including independence, occurs throughout the engagement, as conditions and changes in circumstances occur. Performing initial procedures on acceptance and continuance of client relationships and review engagements and evaluation of relevant ethical requirements (including independence) at the beginning of an engagement informs the assurance practitioner’s decisions and actions prior to the performance of other significant activities for the engagement.

Factors Affecting Acceptance and Continuance of Client Relationships and Review Engagements (Ref: Para. 29)

Assurance engagements may only be accepted when the engagement exhibits certain characteristics^[8] that are conducive to achieving the assurance practitioner’s objectives specified for the engagement.

Rational Purpose (Ref: Para. 29(a)(i))

It may be unlikely that there is a rational purpose for the engagement if, for example:

1. There is a significant limitation on the scope of the assurance practitioner’s work;
2. The assurance practitioner suspects the engaging party intends to associate the assurance practitioner’s name with the financial statements in an inappropriate manner; or
3. 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))

When the assurance practitioner’s preliminary understanding of the engagement circumstances indicates that accepting a review engagement would not be appropriate, the assurance practitioner may consider recommending that another type of engagement be undertaken.  Depending on the circumstances, the assurance 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 assurance practitioner may recommend a compilation engagement, or other accounting services engagement, as appropriate.

Information Needed to Perform the Review Engagement (Ref: Para. 29(c))

An example of where the assurance 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 finalise the financial statements prepared by management.

Preconditions for Accepting a Review Engagement (Ref: Para. 30)

This ASRE also requires the assurance practitioner to ascertain certain matters, upon which it is necessary for the assurance practitioner and the entity’s management to agree, and which are within the control of the entity, prior to the assurance practitioner accepting the engagement.

The Applicable Financial Reporting Framework (Ref: Para. 30(a))

A condition for acceptance of an assurance engagement is that the criteria^[9] referred to in the definition of an assurance engagement are suitable and available to intended users.^[10]  For purposes of this ASRE, the applicable financial reporting framework provides the criteria the assurance 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

Without an acceptable financial reporting framework, management does not have an appropriate basis for the preparation of the financial statements and the assurance practitioner does not have suitable criteria for the review of the financial statements.

The assurance practitioner’s determination of the acceptability of the financial reporting framework applied in the financial statements is made in the context of the assurance 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 assurance practitioner prepares the report.  The assurance 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.

In many cases, in the absence of any indications to the contrary, the assurance practitioner may presume that the applicable financial reporting framework is acceptable (for example, a financial reporting framework that is prescribed by law or regulation in a jurisdiction to be used in the preparation of general purpose financial statements for certain types of entities).

Factors that are relevant to the assurance 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 organisation).
• 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.

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 assurance practitioner’s view, the assurance practitioner is required under this ASRE to decline the engagement.

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 assurance practitioner is required under this ASRE 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))

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 ASRE 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 ASRE 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.

As part of its responsibility for the preparation of the financial statements, management is required to exercise judgement in making accounting estimates that are reasonable in the circumstances, and to select and apply appropriate accounting policies.  These judgements are made in the context of the applicable financial reporting framework.

Because of the significance of the preconditions for undertaking a review of financial statements, the assurance practitioner is required under this ASRE to obtain the agreement of management that it understands its responsibilities before accepting a review engagement.  The assurance 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.

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 assurance practitioner to do so.  In circumstances where the assurance practitioner is required to accept the review engagement, the assurance 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 Assurance Practitioner’s Report Is Prescribed by Law or Regulation (Ref: Para. 34–35)

This ASRE requires the assurance practitioner to not represent compliance with this ASRE unless the assurance practitioner has complied with all the requirements of this ASRE that are relevant to the review engagement. Law or regulation may prescribe matters in relation to an engagement that would ordinarily cause the assurance practitioner to decline the engagement were it possible to do so, for example, if:

• The assurance practitioner considers that the financial reporting framework prescribed by law or regulation is not acceptable; or
• The prescribed layout or wording of the assurance practitioner’s report is in a form or in terms that are significantly different from the layout or wording required by this ASRE.

Under this ASRE, a review conducted in these situations does not comply with this ASRE and the assurance practitioner cannot represent compliance with this ASRE in the report issued for the engagement. Notwithstanding that the assurance practitioner is not permitted to represent compliance with this ASRE, the assurance practitioner is, however, encouraged to apply this ASRE, including the reporting requirements, to the extent practicable. When appropriate to avoid misunderstanding, the assurance practitioner may consider including a statement in the report that the review is not conducted in accordance with this ASRE.

Agreeing the Terms of Engagement

Engagement Letter or Other Form of Written Agreement (Ref: Para. 37)

It is in the interests of both management and those charged with governance, and the assurance practitioner, that the assurance practitioner sends an engagement letter prior to performing the review engagement, to help avoid misunderstandings with respect to the engagement.

Form and content of the engagement letter

The form and content of the engagement letter may vary for each engagement. In addition to including the matters required by this ASRE, an engagement letter may make reference to, for example:

• Arrangements concerning the involvement of other assurance practitioners and experts in the review engagement.
• Arrangements to be made with the predecessor assurance 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 assurance practitioner.
• The agreement of management to inform the assurance practitioner of facts that may affect the financial statements of which management may become aware during the period from the date of the assurance 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

The auditor of the financial statements of a group of entities may request that a assurance 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 ASRE.  The group auditor may also specify additional procedures to supplement the work done for the review performed under this ASRE.  Where the assurance practitioner conducting the review is the auditor of the component entity’s financial statements, the review is not performed in accordance with this ASRE.

Responsibilities of management prescribed by law or regulation (Ref: Para. 37(e))

If, in the circumstances of the engagement, the assurance practitioner concludes that it is not necessary to record certain terms of the engagement in an engagement letter, the assurance practitioner is still required to seek the written agreement from management, and those charged with governance where appropriate, required under this ASRE that they acknowledge and understand their responsibilities set out in this ASRE.  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 ASRE.

Illustrative Engagement Letter (Ref: Para. 37)

An illustrative engagement letter for a review engagement is set out in Appendix 1 to this ASRE.

Recurring Engagements (Ref: Para. 38)

The assurance 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)

A request from the entity for the assurance 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.

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.

In contrast, a change may not be considered reasonable if it appears that the change relates to information that is incorrect, incomplete or otherwise unsatisfactory.  An example might be where the assurance 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 assurance practitioner.

Request to Change the Nature of the Engagement (Ref: Para. 40)

Before agreeing to change a review engagement to another type of engagement or related service, a assurance practitioner who was engaged to perform a review in accordance with this ASRE may need to assess, in addition to the matters referred to in this ASRE, any legal or contractual implications of the change.

If the assurance 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:

1. The original review engagement; or
2. 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.

(Ref: Para. 42)

In a review engagement, the assurance practitioner’s communications with management and those charged with governance take the form of:

1. Enquiries the assurance practitioner makes in the course of performing the procedures for the review; and
2. 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.

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 management or those charged with governance are able to assist the assurance practitioner to overcome the difficulty.

Law or regulation may restrict the assurance 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 assurance practitioner’s obligations of confidentiality and obligations to communicate may be complex. In such cases, the assurance practitioner may consider obtaining legal advice.

Communicating Matters Concerning the Review

Matters to be communicated to management or those charged with governance, as appropriate, under this ASRE may include:

• The assurance 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 assurance 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 assurance practitioner considered performance of additional procedures necessary under this ASRE. The assurance 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 assurance practitioner’s conclusion.
  • Significant difficulties, if any, encountered during the review; for example, unavailability of expected information; unexpected inability to obtain evidence that the assurance practitioner considers necessary for the review; or restrictions imposed on the assurance 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 assurance practitioner’s conclusion or to the assurance practitioner’s withdrawal from the engagement in certain circumstances.

In some entities, different persons are responsible for the management and the governance of an entity. In these circumstances, management may have the responsibility to communicate matters of governance interest to those charged with governance.  Communication by management with those charged with governance of matters that the assurance practitioner is required to communicate does not relieve the assurance 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 assurance practitioner’s communication with those charged with governance.

Communication with Third Parties

In some circumstances, the assurance 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 circumstances the assurance 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.

Unless required by law or regulation to provide a third party with a copy of the assurance practitioner’s written communications with those charged with governance, the assurance practitioner may need the prior consent of management or those charged with governance before doing so.

Materiality in a Review of Financial Statements (Ref: Para. 43)

The assurance 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;
• Judgements 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
• Judgements 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.

If present in the applicable financial reporting framework, a discussion of the concept of materiality provides a frame of reference for the assurance practitioner in determining materiality for the review.  If not present, the above considerations provide the assurance practitioner with a frame of reference.

The assurance practitioner’s determination of materiality is a matter of professional judgement, and is affected by the assurance practitioner’s perception of the needs of the intended users of the financial statements. In this context, it is reasonable for the assurance 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;
• Recognise the uncertainties inherent in the measurement of amounts based on the use of estimates, judgement 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.

The assurance practitioner’s judgement 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 assurance practitioner as the basis for expressing the conclusion on the financial statements.

Revising Materiality (Ref: Para. 44)

The assurance 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).
• New information, or a change in the assurance practitioner’s understanding of the entity and its environment as a result of performing procedures for the review in accordance with this ASRE (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 Assurance Practitioner’s Understanding (Ref: Para. 45–46)

The assurance practitioner uses professional judgement 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 ASRE.  The assurance practitioner’s primary consideration is whether the understanding obtained is sufficient to meet the assurance practitioner’s objectives for the engagement.  The breadth and depth of the overall understanding that the assurance practitioner obtains is less than that possessed by management.

Obtaining an understanding of the entity and its environment is a continual dynamic process of gathering, updating and analysing information throughout the review engagement.  The assurance 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 assurance practitioner’s preliminary understanding of the entity and of the engagement circumstances.  In a continuing client relationship, the assurance practitioner’s understanding includes knowledge obtained from prior engagements performed by the assurance practitioner in relation to the entity’s financial statements and other financial information.

The understanding establishes a frame of reference within which the assurance practitioner plans and performs the review engagement, and exercises professional judgement throughout the engagement.  Specifically, the understanding needs to be sufficient for the assurance practitioner to be able to identify areas in the financial statements where material misstatements are likely to arise, to inform the assurance practitioner’s approach to designing and performing procedures to address those areas.

In obtaining an understanding of the entity and its environment, and of the applicable financial reporting framework, the assurance 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 those obligations or requirements exist under applicable law or regulation or in the context of voluntary financial reporting arrangements established under formalised governance or accountability arrangements, for example, under contractual arrangements with third parties.
• Relevant provisions of laws and regulations that are generally recognised to have a direct effect on the determination of material amounts and disclosures in the financial statements, such as tax and superannuation 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 summarising 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)

The planned nature, timing and extent of the procedures the assurance 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:

1. The requirements of this ASRE; and
2. Requirements established under applicable law or regulation, including additional reporting requirements contained in applicable laws or regulations.

When the assurance practitioner is engaged to review the financial statements of a group of entities, the planned nature, timing and extent of the procedures for the review are directed at achieving the assurance practitioner’s objectives for the review engagement stated in this ASRE, but in the context of the group financial statements.

The requirements of this ASRE relating to designing and performing enquiry and analytical procedures, and procedures addressing specific circumstances, are designed to enable the assurance practitioner to achieve the objectives specified in this ASRE.  The circumstances of review engagements vary widely and, accordingly, there may be circumstances where the assurance 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 assurance practitioner becomes aware of a significant contract the assurance practitioner may choose to read the contract.

The fact that the assurance practitioner may deem it necessary to perform other procedures does not alter the assurance practitioner’s objective of obtaining limited assurance in relation to the financial statements as a whole.

Significant or Unusual Transactions

The assurance practitioner may consider, reviewing the accounting records with a view to identifying significant or unusual transactions that may require specific attention in the review.

Enquiry (Ref: Para. 46–48)

In a review, enquiry includes seeking information of management and other persons within the entity, as the assurance practitioner considers appropriate in the engagement circumstances. The assurance practitioner may also extend enquiries to obtain non‑financial data if appropriate.  Evaluating the responses provided by management is integral to the enquiry process.

Depending on the engagement circumstances, enquiries may also include enquiries 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 enquiries in relation to identified inconsistencies, the assurance practitioner considers the reasonableness and consistency of management’s responses in light of the results obtained from other procedures, and the assurance practitioner’s knowledge and understanding of the entity and the industry in which it operates.

Evidence obtained through enquiry 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 enquiry.  Application of professional scepticism in evaluating responses provided by management is important to enable the assurance practitioner to evaluate whether there are any matter(s) that would cause the assurance practitioner to believe the financial statements may be materially misstated.

Performing enquiry procedures assists the assurance practitioner also in obtaining or updating the assurance 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.

The assurance practitioner may have additional responsibilities under law, regulation or relevant ethical requirements regarding an entity’s non-compliance with laws and regulations, including fraud, which may differ from or go beyond this ASRE, such as:

1. Responding to identified or suspected non-compliance with laws and regulations, including requirements in relation to specific communications with management and those charged with governance and considering whether further action is needed;
2. Communicating identified or suspected non-compliance with laws and regulations to an auditor, for example a group engagement partner;^[11] and
3. Documentation requirements regarding identified or suspected non-compliance with laws and regulations.

Complying with any additional responsibilities may provide further information that is relevant to the assurance practitioner’s work in accordance with this Assurance Standard (e.g., regarding the integrity of management or, where appropriate, those charged with governance).

Enquiry about the entity’s ability to continue as a going concern (Ref: Para. 48(f))

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 assurance practitioner’s understanding of the entity.

Analytical Procedures (Ref: Para. 46–47, 49)

In a review of financial statements, performing analytical procedures assists the assurance practitioner in:

• Obtaining or updating the assurance 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 enquiry or analytical procedures already performed.
• Serving as additional procedures when the assurance practitioner becomes aware of matter(s) that cause the assurance 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 centres, branches or other components of the entity, to provide evidence about financial information contained in line items or disclosures contained in the financial statements.

Various methods may be used to perform analytical procedures. These methods range from performing simple comparisons to performing complex analysis using statistical techniques. The assurance 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 assurance practitioner would compare recorded amounts, or ratios developed from recorded amounts, to expectations developed by the assurance practitioner from information obtained from relevant sources. Examples of sources of information the assurance 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.

The assurance 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 assurance 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 specialised products;
• Nature and relevance of the information available; for example, whether the 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 and regulations (Ref: Para. 52(a) and (d))

Communication with management and those charged with governance

In some jurisdictions, law or regulation may restrict the assurance practitioner’s communication of certain matters with management or those charged with governance. 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, including alerting the entity, for example, when the assurance practitioner is required to report identified or suspected non‑compliance with laws and regulations to an appropriate authority pursuant to anti‑money laundering legislation. In these circumstances, the issues considered by the assurance practitioner may be complex and the assurance practitioner may consider it appropriate to obtain legal advice.

Reporting of identified or suspected non‑compliance with laws and regulations to an appropriate authority outside the entity

Reporting identified or suspected non-compliance with laws and regulations to an appropriate authority outside the entity may be required or appropriate in the circumstances because:

1. Law, regulation or relevant ethical requirements require the assurance practitioner to report;
2. The assurance practitioner has determined reporting is an appropriate action to respond to identified or suspected non-compliance in accordance with relevant ethical requirements (see paragraph A95); or
3. Law, regulation or relevant ethical requirements provide the assurance practitioner with the right to do so (see paragraph A96)

In some cases, the relevant ethical requirements may require the assurance practitioner to report or to consider whether reporting identified or suspected fraud or non‑compliance with laws and regulations to an appropriate authority outside the entity is an appropriate action in these circumstances. For example, APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) requires the assurance practitioner to take steps to respond to identified or suspected non‑compliance with laws and regulations, and consider whether further action is needed, which may include reporting to an appropriate authority outside the entity.^[12] The Code explains that such reporting would not be considered a breach of the duty of confidentiality under the Code.^[13]

Even if law, regulation or relevant ethical requirements do not include requirements that address reporting identified or suspected non‑compliance, they may provide the assurance practitioner with the right to report identified or suspected fraud or non‑compliance with laws and regulations to an appropriate authority outside the entity.

In other circumstances, the reporting of identified or suspected non‑compliance with laws and regulations to an appropriate authority outside the entity may be precluded by the assurance practitioner’s duty of confidentiality under law, regulation or relevant ethical requirements.

The determination required by paragraph 52(d) may involve complex considerations and professional judgements. Accordingly, the assurance practitioner may consider consulting internally (e.g., within the firm or a network firm) or on a confidential basis with a regulator or a professional body (unless doing so is prohibited by law or regulation or would breach the duty of confidentiality). The assurance practitioner may also consider obtaining legal advice to understand the assurance practitioner’s options and the professional or legal implications of taking any particular course of action.

Events or conditions that may cast doubt regarding use of the going concern assumption in the financial statements (Ref: Para. 54)

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.
• 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).
• Labour 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)

The assurance 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).

Performing Additional Procedures (Ref: Para. 57)

Additional procedures are required under this ASRE if the assurance practitioner becomes aware of a matter that causes the assurance practitioner to believe the financial statements may be materially misstated.

The assurance practitioner’s response in undertaking additional procedures with respect to an item the assurance 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 assurance practitioner’s professional judgement.

The assurance practitioner’s judgement 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 assurance practitioner’s evaluation of the results of the procedures already performed;
• The assurance practitioner’s updated understanding of the entity and its environment obtained throughout the course of the engagement; and
• The assurance practitioner’s view on the persuasiveness of evidence needed to address the matter that causes the assurance practitioner to believe that the financial statements may be materially misstated.

Additional procedures focus on obtaining sufficient appropriate evidence to enable the assurance practitioner to form a conclusion on matters that the assurance practitioner believes may cause the financial statements to be materially misstated. The procedures may be:

• Additional enquiry 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.

The following example illustrates the assurance practitioner’s evaluation of the need to perform additional procedures, and the assurance practitioner’s response when the assurance practitioner believes additional procedures are necessary.

• In the course of performing the enquiry and analytical procedures for the review, the assurance 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.
• This causes the assurance practitioner to believe that the accounts receivable balance in the financial statements may be materially misstated. The assurance practitioner then enquires of management whether there are uncollectible accounts receivable that would need to be shown as being impaired.
• Depending on management’s response, the assurance practitioner’s evaluation of the response may:
  1. Enable the assurance practitioner to conclude that the accounts receivable balance is not likely to be materially misstated. In that case, no further procedures are required.
  2. Enable the assurance practitioner to determine that the matter causes the financial statements to be materially misstated. No further procedures are required, and the assurance practitioner would form the conclusion that the financial statements as a whole are materially misstated.
  3. Lead the assurance practitioner to continue to believe that the accounts receivable balance is likely to be materially misstated, while not providing sufficient appropriate evidence for the assurance practitioner to determine that they are in fact misstated. In that case, the assurance 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 assurance practitioner to get to (a) or (b) above. If not, the assurance practitioner is required to:
     1. Continue performing additional procedures until the assurance practitioner reaches either (a) or (b) above; or
     2. If the assurance 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 assurance practitioner is not able to form an unmodified conclusion on the financial statements.

(Ref: Para. 61–63)

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 assurance 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.

In addition to the written representations required under this ASRE, the assurance practitioner may consider it necessary to request other written representations about the financial statements.  These may be needed, for example, to complete the assurance practitioner’s evidence with respect to certain items or disclosures reflected in the financial statements where the assurance practitioner considers such representations to be important in forming a conclusion on the financial statements on either a modified or unmodified basis.

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 assurance practitioner to accept such wording if the assurance practitioner is satisfied that the representations are being made by those with appropriate responsibilities and knowledge of the matters included in the representations.

An illustrative representation letter for a review engagement is set out in [Aus] Appendix 1A to this ASRE.

(Ref: Para. 66–68)

In some circumstances, the assurance practitioner may not have obtained the evidence that the assurance practitioner had expected to obtain through the design of primarily enquiry and analytical procedures and procedures addressing specific circumstances. In these circumstances, the assurance 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 assurance practitioner may:

• Extend the work performed; or
• Perform other procedures judged by the assurance practitioner to be necessary in the circumstances.

Where neither of these is practicable in the circumstances, the assurance practitioner will not be able to obtain sufficient appropriate evidence to be able to form a conclusion and is required by this ASRE to determine the effect on the assurance practitioner’s report, or on the assurance 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 assurance practitioner's enquiries on significant matters. This situation may arise even though the assurance practitioner has not become aware of a matter(s) that causes the assurance practitioner to believe the financial statements may be materially misstated, as addressed in paragraph 57.

Scope Limitations

Inability to perform a specific procedure does not constitute a limitation on the scope of the review if the assurance practitioner is able to obtain sufficient appropriate evidence by performing other procedures.

Limitations on the scope of the review imposed by management may have other implications for the review, such as for the assurance practitioner’s consideration of areas where the financial statements are likely to be materially misstated, and engagement continuance.

Description of the Applicable Financial Reporting Framework (Ref: Para. 69(a))

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 assurance 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.

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 Australian Accounting Standards”) 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)

The assurance practitioner is required under this ASRE 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.

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.

Considerations When a Compliance Framework Is Used

It will be extremely rare for the assurance practitioner to consider financial statements prepared in accordance with a compliance framework to be misleading if, in accordance with this ASRE, the assurance 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))

In considering the qualitative aspects of the entity’s accounting practices, the assurance practitioner may become aware of possible bias in management’s judgements. The assurance 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 assurance 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.

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 assurance 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

In the case of financial statements prepared in accordance with a fair presentation framework, the assurance practitioner’s conclusion states that nothing has come to the assurance practitioner’s attention that causes the assurance practitioner to believe that the financial statements do not present fairly, in all material respects, … (or do not give a true and fair view of …) in accordance with [the applicable fair presentation framework]. In the case of many general purpose frameworks, for example, the financial statements are required to fairly present (or give a true and fair view of) 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.

“Present fairly, in all material respects” or “gives a true and fair view”

Whether the phrase “present fairly, in all material respects,” or the phrase “gives a true and fair view” is used in any particular jurisdiction is determined by the law or regulation governing the review of financial statements in that jurisdiction, or by generally accepted practice in that jurisdiction.  Where law or regulation requires the use of different wording, this does not affect the requirement in this ASRE for the assurance 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)

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 assurance practitioner has substantially completed the review, the assurance 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.

In certain circumstances, withdrawal from the engagement may not be possible if the assurance practitioner is required by law or regulation to continue the engagement.  For example, this may be the case for an assurance practitioner appointed to review the financial statements of a public sector entity.  It may also be the case in jurisdictions where the assurance 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 assurance practitioner may also consider it necessary to include an Other Matter paragraph in the assurance practitioner’s report to explain why it is not possible for the assurance practitioner to withdraw from the engagement.

Communication with Regulators or the Entity’s Owners

When the assurance 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 assurance practitioner to communicate matters relating to the withdrawal from the engagement to regulators or the entity’s owners.

(Ref: Para. 86–92)

The written report encompasses reports issued in hard copy format and those using an electronic medium.

Elements of the Assurance Practitioner’s Report (Ref: Para. 86)

A title indicating the report is the report of an independent assurance practitioner, for example, “Independent Assurance Practitioner’s Review Report,” affirms that the assurance practitioner has met all of the relevant ethical requirements regarding independence and, therefore, distinguishes the independent assurance practitioner’s report from reports issued by others.

Law or regulation may specify to whom the assurance practitioner’s report is to be addressed in that particular jurisdiction. The assurance 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.

When the assurance 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 assurance 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 assurance practitioner’s report relates.

Management’s Responsibility for the Financial Statements (Ref: Para. 86(d))

The requirement of this ASRE that the assurance 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 assurance practitioner’s report provides context for readers of the assurance practitioner’s report about management’s responsibilities, as they relate to the review engagement performed.

The assurance 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 in the particular jurisdiction.  In some jurisdictions, the appropriate reference is to those charged with governance of the entity.

There may be circumstances when it is appropriate for the assurance practitioner to add to the description of management’s responsibilities as described in this ASRE to reflect additional responsibilities that are relevant to the preparation of the financial statements in the context of a jurisdiction, or due to the type of entity.

In some jurisdictions, 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 systems are an integral part of internal control, this ASRE does not use these descriptions or make any specific reference to them.

The Assurance Practitioner’s Responsibility (Ref: Para. 86(f))

The assurance practitioner’s report states that the assurance practitioner’s responsibility is to express a conclusion on the financial statements based on the review performed, in order to contrast the assurance practitioner’s responsibility with management’s responsibility for preparation of the financial statements.

Reference to standards (Ref: Para. 86(f))

The reference to the standards used by the assurance practitioner for the review conveys to the users of the assurance 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))

The description of the nature of a review engagement in the assurance 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 assurance practitioner does not express an audit opinion on the financial statements.

Description of the Applicable Financial Reporting Framework and How It May Affect the Assurance Practitioner’s Conclusion (Ref: Para. 86(i)(ii))

The identification of the applicable financial reporting framework in the assurance practitioner’s conclusion is intended to advise users of the assurance 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 Australian Accounting Standards;” or

“… in accordance with accounting principles generally accepted in Jurisdiction X …”

When the applicable financial reporting framework encompasses financial reporting standards and legal or regulatory requirements, the framework is identified in such terms as “… in accordance with Australian Accounting Standards and the requirements of Jurisdiction X Act.”

Basis for Modification Paragraph When the Conclusion Is Modified (Ref: Para. 85(h)(ii))

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 assurance practitioner’s conclusion.  In such cases, the disclosure of such other matters of which the assurance practitioner is aware may be relevant to users of the financial statements.

Signature of the Assurance Practitioner (Ref: Para. 86(l))

The assurance practitioner’s signature is either in the name of the assurance practitioner’s firm, the personal name of the individual assurance practitioner, or both, as appropriate for the particular jurisdiction.  In addition to the assurance practitioner’s signature, in certain jurisdictions, the assurance practitioner may be required to make a declaration in the assurance practitioner’s report about professional designations or recognition by the appropriate licensing authority in that jurisdiction.

Alerting Readers that the Financial Statements Are Prepared in Accordance with a Special Purpose Framework (Ref: Para. 88)

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 assurance practitioner alert users of the assurance 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

In addition to the alert to the reader of the assurance practitioner’s report that is required by this ASRE when the financial statements are prepared using a special purpose framework, the assurance practitioner may consider it appropriate to indicate that the assurance practitioner’s report is intended solely for the specific users.  Depending on the law or regulation of the particular jurisdiction, this may be achieved by restricting the distribution or use of the assurance 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)

In some jurisdictions, the assurance practitioner may have additional responsibilities to report on other matters that are supplementary to the assurance practitioner’s responsibility under this ASRE.  For example, the assurance practitioner may be asked to report certain matters if they come to the assurance practitioner’s attention during the course of the review of the financial statements.  Alternatively, the assurance 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.  Standards on engagements to review financial statements in the specific jurisdiction may provide guidance on the assurance practitioner’s responsibilities with respect to specific additional reporting responsibilities in that jurisdiction.

In some cases, the relevant law or regulation may require or permit the assurance practitioner to report on these other responsibilities within the assurance practitioner’s report on the financial statements. In other cases, the assurance practitioner may be required or permitted to report on them in a separate report.

These other reporting responsibilities are addressed in a separate section of the assurance practitioner’s report, to clearly distinguish them from the assurance practitioner’s responsibility under this ASRE 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 jurisdictions, the additional reporting responsibilities may be addressed in a report that is separate from the assurance practitioner’s report provided for the review of the financial statements.

Date of the Assurance Practitioner’s Report (Ref: Para. 86(k), 92)

The date of the assurance practitioner’s report informs the user of the assurance practitioner’s report that the assurance practitioner has considered the effect of events and transactions of which the assurance practitioner became aware and that occurred up to that date.

The assurance practitioner’s conclusion is provided on the financial statements and the financial statements are the responsibility of management.  The assurance practitioner is not in a position to conclude that sufficient appropriate evidence has been obtained until the assurance 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.

In some jurisdictions, 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 other jurisdictions, however, the approval process is not prescribed in law or regulation.  In such cases, the procedures the entity follows in preparing and finalising 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.

In some jurisdictions, final approval of the financial statements by shareholders is required before the financial statements are issued publicly.  In these jurisdictions, final approval by shareholders is not necessary for the assurance practitioner to conclude on the financial statements.  The date of approval of the financial statements for purposes of this ASRE is the earlier date on which those with the recognised authority determine that all the statements that comprise the financial statements, including the related notes, have been prepared and that those with the recognised authority have asserted that they have taken responsibility for them.

Assurance Practitioner’s Report Prescribed by Law or Regulation (Ref: Para. 34–35, 86)

Consistency in the assurance practitioner’s report, when the review has been conducted in accordance with this ASRE, which uses the equivalent ISRE 2400 (Revised) Engagements to Review Historical Financial Statements as the underlying standard, promotes credibility in the global marketplace by making more readily identifiable those reviews of financial statements that have been conducted in accordance with globally recognised standards.  The assurance practitioner’s report may refer to this ASRE when the differences between the legal or regulatory requirements and this ASRE relate only to the layout or wording of the assurance practitioner’s report and, at a minimum, the report complies with the requirements of paragraph 86 of this ASRE.  Accordingly, in such circumstances the assurance practitioner is considered to have complied with the requirements of this ASRE, even when the layout and wording used in the assurance practitioner’s report are specified by legal or regulatory reporting requirements.  Where specific requirements in a particular jurisdiction do not conflict with this ASRE, adoption of the layout and wording used in this ASRE assists users of the assurance practitioner’s report to more readily recognise the assurance practitioner’s report as a report on a review of financial statements conducted in accordance with this ASRE. Circumstances where law or regulation prescribes the layout or wording of the assurance practitioner’s report in terms that are significantly different from the requirements of this ASRE are addressed in the requirements of this ASRE concerning acceptance of review engagements and continuance of client relationships.

Assurance Practitioner’s Report for Reviews Conducted in Accordance with Both Relevant Standards of a Specific Jurisdiction and this ASRE (Ref: Para. 86(f))

When, in addition to complying with the requirements of this ASRE, the assurance practitioner also complies with relevant other standards, the report may refer to the review having been performed in accordance with both this ASRE and relevant other standards for engagements to review financial statements.  However, a reference to both this ASRE and relevant other standards is not appropriate if there is a conflict between the requirements of this ASRE and those in the relevant other standards that would lead the assurance 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 ASRE.  In such a case, the assurance practitioner’s report refers only to the relevant standards (either this ASRE or the relevant other standards) in accordance with which the assurance practitioner’s report has been prepared.

Illustrative Review Reports (Ref: Para. 86)

Appendix 2 to this ASRE contains illustrations of assurance practitioners’ reports for a review of financial statements incorporating the reporting requirements of this ASRE.

Timeliness of Engagement Documentation (Ref: Para. 93)

ASQM 1 requires the firm to establish a quality objective that engagement documentation is assembled on a timely basis after the date of the engagement report.