ASRE 2410

This Auditing Standard on Review Engagements (Auditing Standard) deals with the auditor’s responsibilities when an auditor undertakes an engagement to review a financial report of an audit client, and on the form and content of the auditor’s review report.  The term “auditor” is used throughout this Auditing Standard, not because the auditor is performing an audit function but because the scope of this Auditing Standard is limited to a review of a financial report performed by the auditor of the financial report of the entity.

The auditor who is engaged to perform a review of a financial report shall perform the review in accordance with this Auditing Standard.  (Ref: Para. A4)

Where in rare and exceptional circumstances, factors outside the auditor’s control prevent the auditor from complying with an essential procedure contained within a relevant requirement in this Auditing Standard, the auditor shall:

1. if possible, perform appropriate alternative procedures; and
2. document in the working papers:
   1. the circumstances surrounding the inability to comply;
   2. the reasons for the inability to comply; and
   3. justification of how alternative procedures achieve the objectives of the requirement.

When the auditor is unable to perform appropriate alternative procedures, the auditor shall consider the implications for the auditor’s review report.

The auditor shall comply with relevant ethical requirements relating to the audit of the annual financial report of the entity.  (Ref: Para. A5)

The auditor shall implement quality control procedures that are applicable to the individual engagement.  (Ref: Para. A6)

The auditor shall plan and perform the review by exercising professional judgement and with an attitude of professional scepticism, recognising that circumstances may exist that cause the financial report to require a material adjustment for it to be prepared, in all material respects, in accordance with the applicable financial reporting framework.  (Ref: Para. A7)

(Ref: Para. A8, A58 and A60)

Preconditions for a Review

The auditor shall, prior to agreeing the terms of the engagement, determine whether the financial reporting framework is acceptable and obtain agreement from management and, where appropriate, those charged with governance, that it acknowledges and understands its responsibility:

1. for the preparation of the financial report including, where relevant their fair presentation;
2. for such internal controls as management and, where appropriate, those charged with governance, deems necessary to enable the preparation of the financial report that is free from material misstatement; and
3. to provide the auditor with:
   1. access to information relevant to the preparation of the financial report;
   2. additional information that the auditor may request for the purposes of the review engagement; and
   3. unrestricted access to persons from whom the auditor determines it necessary to obtain evidence.

Agreement on Review Engagement Terms

The auditor shall agree the terms of the engagement with the entity, which shall be recorded in writing by the auditor and forwarded to the entity.  When the review engagement is undertaken pursuant to legislation, the minimum applicable terms are those contained in the legislation. 

The auditor shall obtain an understanding of the entity and its environment, including its internal control, as it relates to the preparation of both the annual and interim or other financial reports, sufficient to plan and conduct the engagement so as to be able to:

1. identify the types of potential material misstatements and consider the likelihood of their occurrence; and
2. select the enquiries, analytical and other review procedures that will provide the auditor with a basis for reporting whether anything has come to the auditor’s attention that causes the auditor to believe that the financial report is not prepared, in all material respects, in accordance with the applicable financial reporting framework. (Ref: Para. A9-A12)

In order to plan and conduct a review of a financial report, a recently appointed auditor, who has not yet performed an audit of the annual financial report in accordance with Australian Auditing Standards, shall obtain an understanding of the entity and its environment, including its internal control, as it relates to the preparation of both the annual and interim or other financial reports.  (Ref: Para. A13)

(Ref: Para. A14-A18)

The auditor shall consider materiality, using professional judgement, when:

1. determining the nature, timing and extent of review procedures; and
2. evaluating the effect of misstatements.

The auditor shall make enquiries, primarily of persons responsible for financial and accounting matters, and perform analytical and other review procedures to enable the auditor to conclude whether, on the basis of the procedures performed, anything has come to the auditor’s attention that causes the auditor to believe that the financial report is not prepared, in all material respects, in accordance with the applicable financial reporting framework.  (Ref: Para. A19‑A23)

The auditor shall obtain evidence that the financial report agrees or reconciles with the underlying accounting records.  (Ref: Para. A24)

The auditor shall enquire whether management has identified all events up to the date of the auditor’s review report that may require adjustment to or disclosure in the financial report.  (Ref: Para. A25)

The auditor shall enquire whether those charged with governance have changed their assessment of the entity’s ability to continue as a going concern. When, as the result of this enquiry or other review procedures, the auditor becomes aware of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, the auditor shall:

1. enquire of those charged with governance as to their plans for future actions based on their going concern assessment, the feasibility of these plans, and whether they believe that the outcome of these plans will improve the situation; and
2. consider the adequacy of the disclosure about such matters in the financial report. (Ref: Para. A26)

The auditor shall enquire of management and, where appropriate, those charged with governance, as to the existence of any actual or suspected non-compliance with 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 report. (Ref: Para. A20)

When a matter comes to the auditor’s attention that leads the auditor to question whether a material adjustment should be made for the financial report to be prepared, in all material respects, in accordance with the applicable financial reporting framework, the auditor shall make additional enquiries or perform other procedures to enable the auditor to express a conclusion in the auditor’s review report.  (Ref: Para. A27)

(Ref: Para. A28-A31)

When comparative information is included for the first time in a financial report, an auditor shall perform similar procedures on the comparative information as applied to the current period financial report. 

(Ref: Para. A32-A34)

The auditor shall evaluate, individually and in the aggregate, whether uncorrected misstatements that have come to the auditor’s attention are material to the financial report. 

The auditor shall endeavour to obtain written representations from management and, where appropriate, those charged with governance, that:

1. They acknowledge their responsibility for the design and implementation of internal control to prevent and detect fraud and error;
2. The financial report is prepared and presented in accordance with the applicable financial reporting framework;
3. They believe the effect of those uncorrected misstatements aggregated by the auditor during the review are immaterial, both individually and in the aggregate, to the financial report taken as a whole. A summary of such items is included in or attached to the written representations;
4. They have disclosed to the auditor all significant facts relating to any frauds or suspected frauds known to them that may have affected the entity;
5. They have disclosed to the auditor the results of their assessment of the risk that the financial report may be materially misstated as a result of fraud;
6. They have disclosed to the auditor all known actual or suspected non-compliance with laws and regulations, the effects of which are to be considered when preparing the financial report; and
7. They have disclosed to the auditor all significant events that have occurred subsequent to the balance sheet date and through to the date of the auditor’s review report that may require adjustment to or disclosure in the financial report. (Ref: Para. A35)

If management and, where appropriate, those charged with governance refuse to provide a written representation that the auditor considers necessary, this constitutes a limitation on the scope of the auditor’s work and the auditor shall express a qualified conclusion or a disclaimer of conclusion, as appropriate.

The auditor shall read the other information that accompanies the financial report to consider whether there is a material inconsistency with the financial report.  (Ref: Para. A36)

If a matter comes to the auditor’s attention that causes the auditor to believe that the other information appears to include a material misstatement of fact, the auditor shall discuss the matter with the entity’s management, and where appropriate, those charged with governance.  (Ref: Para. A38)

When, as a result of performing a review of a financial report, a matter comes to the auditor’s attention that causes the auditor to believe that it is necessary to make a material adjustment to the financial report for it to be prepared, in all material respects, in accordance with the applicable financial reporting framework, the auditor shall communicate this matter as soon as practicable to the appropriate level of management.

When, in the auditor’s judgement, management does not respond appropriately within a reasonable period of time, the auditor shall inform those charged with governance.  (Ref: Para. A39)

When, in the auditor’s judgement, those charged with governance do not respond appropriately within a reasonable period of time, the auditor shall consider:

1. Whether to modify the auditor’s review report; or
2. The possibility of withdrawing from the engagement; and
3. The possibility of resigning from the appointment to audit the annual financial report. (Ref: Para. A37 and A62)

When, as a result of performing the review of a financial report, a matter comes to the auditor’s attention that indicates the existence of fraud or non-compliance with laws and regulations, or suspected fraud or non-compliance with laws and regulations, the auditor shall:

1. Communicate the matter unless prohibited by law or regulation, as soon as practicable to management and where appropriate those charged with governance;
2. Request management’s assessment of the effect (s) on the financial report;
3. Consider the effect on the auditor’s conclusion and the auditor’s review report; and
4. Determine whether law, regulation or relevant ethical requirements:
   1. require the auditor to report to an appropriate authority outside the entity;
   2. establish responsibilities under which reporting to an appropriate authority outside the entity may be appropriate in the circumstances. (Ref: Para. A39 – A41)

The auditor shall communicate relevant matters of governance interest arising from the review of the financial report to those charged with governance.  (Ref: Para. A42 and A63)

The auditor shall issue a written report that contains the following:

1. An appropriate title clearly identifying it as a review report of the independent auditor of the entity.
2. An addressee, as required by the circumstances of the engagement.

The first section of the auditor’s review report shall include the auditor’s conclusion, and shall have the heading “Conclusion”. The Conclusion section of the auditor’s review report shall:

1. Identify the entity whose financial report has been reviewed;
2. State that the financial report has been reviewed;
3. Identify the title of each statement comprising the financial report;
4. Refer to the notes, including a summary of significant accounting policies and other explanatory notes^[2];
5. Specify the date or, or the period covered by, each statement comprising the financial report; and
6. Include a conclusion:
   1. When expressing an unmodified conclusion on a half-year financial report prepared in accordance with the Corporations Act 2001, the report shall include a conclusion as to whether the auditor has become aware of any matter that makes the auditor believe that the half-year financial report does not comply with the Corporations Act 2001, including giving a true and fair view of the financial position and its performance, and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulation 2001^[3] .
   2. When expressing an unmodified conclusion on a financial report prepared in accordance with a fair presentation framework, the report shall include a conclusion as to whether anything has come to the auditor’s attention that causes the auditor to believe that the financial report does not present fairly, in all material respects, or if applicable is not true and fair, in accordance with the applicable financial reporting framework (including a reference to the jurisdiction or country of origin of the financial reporting framework when Australia is not the origin of the financial reporting framework used).
   3. When expressing an unmodified conclusion on a financial report prepared in accordance with a compliance framework, the report shall include a conclusion as to whether anything has come to the auditor’s attention that causes the auditor to believe that the financial report has not been prepared, in all material respects, in accordance with the applicable financial reporting framework (including a reference to the jurisdiction or country of origin of the financial reporting framework when Australia is not the origin of the financial reporting framework used). (Ref A43 and A44)

The report shall include a section directly following the Conclusion section, with the heading “Basis for Conclusion”, that:

1. States that the review of the financial report was conducted in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity;
2. Refers to the section of the auditor’s review report that describes the auditor’s responsibilities; and
3. Includes a statement that the auditor is independent of the entity in accordance with the relevant ethical requirements relating to the audit of the annual financial report, and has fulfilled the auditor’s other ethical responsibilities in accordance with these requirements. The statement shall identify the relevant ethical requirements applicable within Australia.

The auditor’s report shall include a section with a heading “Responsibilities of Management for the Financial Report”. The auditor’s review report shall use the term that is appropriate in the context of the legal framework in the particular jurisdiction and need not refer specifically to “management”. In some jurisdictions the appropriate reference may be to those charged with governance. This section of the report shall describe the responsibilities of management for the preparation of the financial report in accordance with the applicable financial reporting framework, and for such internal control as management determines is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.

When the financial report is prepared in accordance with a fair presentation framework, the description of responsibilities of management for the financial report in the auditor’s review report shall refer to “the preparation and fair presentation of this financial report” or “the preparation of the financial report that gives a true and fair view”, as appropriate in the circumstances.

The report shall include a section with a heading “Auditor’s Responsibilities for the Review of the Financial Report”. This section of the report shall:

1. State that the auditor is responsible for expressing a conclusion on the financial report based on the review;
2. State that a review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures; and
3. State that a review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable the auditor to obtain assurance that the auditor would become aware of all significant matters that might be identified in an audit, and that accordingly no audit opinion is expressed;

The report shall include:

1. The date the auditor signs the auditor’s review report;
2. The location in the country or jurisdiction where the auditor practices;
3. The name of the engagement partner where required by law or regulation^[4] ; and
4. The auditor’s signature.

The auditor shall express a qualified or adverse conclusion when a matter has come to the auditor’s attention that causes the auditor to believe that a material adjustment should be made to the financial report for it to be prepared, in all material respects, in accordance with the applicable financial reporting framework.  The auditor shall amend the heading “Basis for Conclusion” to “Basis for Qualified Conclusion” or “Basis for Adverse Conclusion” and describe the nature of the departure and, if practicable, state the effects on the financial report.  If the effects or possible effects are incapable of being measured reliably, a statement to that effect and the reasons therefore shall be included in the Basis for Qualified Conclusion or Basis for Adverse Conclusion section of the report. The conclusion paragraph shall be headed “Qualified Conclusion” or “Adverse Conclusion” whichever is relevant.  (Ref: Para. A45)

When the effect of the departure is so material and pervasive to the financial report that the auditor concludes a qualified conclusion is not adequate to disclose the misleading or incomplete nature of the financial report, the auditor shall express an adverse conclusion.  (Ref: Para. A46)

(Ref: Para. A47)

When the auditor is unable to complete the review, the auditor shall communicate, in writing, to the appropriate level of management and to those charged with governance the reason why the review cannot be completed, and consider whether it is appropriate to issue a review report.

Unless required by law or regulation, an auditor shall not accept an engagement to review a financial report when management has imposed a limitation on the scope of the auditor’s review.  (Ref: Para. A48)

If, after accepting the engagement, management imposes a limitation on the scope of the review, the auditor shall request management to remove the limitation.  If management refuses the auditor’s request to remove the limitation, the auditor shall communicate, in writing, to the appropriate level of management and those charged with governance, the reason(s) why the review cannot be completed.  (Ref: Para. A49)

If management and, where appropriate, those charged with governance, refuses the auditor’s request to remove a limitation that has been imposed on the scope of the review, but there is a legal or regulatory requirement for the auditor to issue a report, the auditor shall issue a disclaimer of conclusion or qualified conclusion report, as appropriate, containing the reason(s) why the review cannot be completed.  (Ref: Para A50)

When the auditor disclaims a conclusion on the financial report, the auditor shall not include the elements required by paragraph 35(b).

When the auditor disclaims a conclusion on the financial report, the auditor shall amend the description of the auditor’s responsibilities required by paragraph 38 to include only:

1. A statement that the auditor’s responsibility is to conduct a review of the entity’s financial report in accordance with ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity;
2. A statement that, however, because of the matter(s) described in the Basis for Disclaimer of Conclusion section, the auditor was not able to obtain sufficient evidence to provide a basis for a review conclusion on the financial report.
3. The statement about auditor independence and other ethical responsibilities required by paragraph 35(c).

(Ref: Para. A51-A52)

The auditor shall express a qualified conclusion when, in rare circumstances, there is a limitation on the scope of the auditor’s work that is confined to one or more specific matters, which while material, is not in the auditor’s judgement pervasive to the financial report, and when the auditor concludes that an unqualified conclusion cannot be expressed.  A qualified conclusion shall be expressed as being “except for” the effects of the matter to which the qualification relates.  The conclusion paragraph shall be headed “Qualified Conclusion”.

(Ref: Para. A53-A54)

Use of going concern basis of accounting is appropriate

If adequate disclosure about the material uncertainty is made in the financial report, the auditor shall express an unmodified review conclusion and the auditor’s review report shall include a separate section under the heading “Material Uncertainty Related to Going Concern” to highlight a material uncertainty relating to an event or condition that casts significant doubt on the entity’s ability to continue as a going concern. This section shall:

1. Draw attention to the note in the financial report that discloses the matter;
2. State that the events or conditions indicate that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern and that the auditor’s conclusion is not modified in respect of the matter.

If a material uncertainty that casts significant doubt on the entity’s ability to continue as a going concern is not adequately disclosed in the financial report, the auditor shall:

1. Express a qualified or adverse conclusion, as appropriate; and
2. In the Basis for Qualified or Adverse Conclusion section of the auditor’s review report, state that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern and that the financial report does not adequately disclose this matter.

Use of going concern basis of accounting is inappropriate

If the financial report has been prepared using the going concern basis of accounting but, in the auditor’s judgement, management’s use of the going concern basis of accounting in the preparation of the financial report is inappropriate, the auditor shall express an adverse conclusion.

(Ref: A56 and A57)

The auditor shall consider including an Emphasis of Matter paragraph in the auditor’s review report to draw users’ attention to a matter presented or disclosed in the financial report that, in the auditor’s judgement, is of such importance that it is fundamental to users’ understanding of the financial report. 

When the auditor includes an Emphasis of Matter paragraph in the auditor’s review report the auditor shall:

1. Include the paragraph within a separate section of the auditor’s review report with an appropriate heading that includes the term “Emphasis of Matter”;
2. Include a clear reference to the matter being emphasised and to where relevant disclosures that fully describe the matter can be found in the financial report. The paragraph shall refer only to information presented or disclosed in the financial report; and
3. Indicate that the auditor’s review conclusion is not modified in respect of the matter emphasised.

The auditor shall consider including an Other Matter paragraph in the auditor’s review report to communicate a matter other than those that are presented or disclosed in the financial report, that in the auditor’s judgement is relevant to users’ understanding of the review, the auditor’s responsibilities, or the auditor’s review report, if not prohibited by law or regulation. When including an Other Matter paragraph in the auditor’s review report, the auditor shall include a separate section with the heading “Other Matter”, or other appropriate heading.

(Ref: Para. A64)

The auditor shall prepare review documentation that is sufficient and appropriate to provide a basis for the auditor’s conclusion, and to provide evidence that the review was performed in accordance with this Auditing Standard and applicable legal and regulatory requirements.

(Ref: Para. 4)

Under paragraph 13, the auditor needs to make enquiries, and perform analytical and other review procedures in order to reduce to a limited level the risk of expressing an inappropriate conclusion when the financial report is materially misstated. 

The objective of a review of a financial report differs significantly from that of an audit conducted in accordance with Australian Auditing Standards. A review of a financial report does not provide a basis for expressing an opinion whether the financial report gives a true and fair view, or is presented fairly, or has not been prepared, in all material respects, in accordance with the applicable financial reporting framework. 

A review, in contrast to an audit, is not designed to obtain reasonable assurance that the financial report is free from material misstatement. A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review may bring significant matters affecting the financial report to the auditor’s attention, but it does not provide all of the evidence that would be required in an audit.

(Ref: Para 6)

Through performing the audit of the annual financial report, the auditor obtains an understanding of the entity and its environment, including its internal control.  When the auditor is engaged to review the financial report, under paragraph 13, the auditor needs to update this understanding through enquiries made in the course of the review, to assist the auditor in focusing the enquiries to be made and the analytical and other review procedures to be applied. A practitioner who is engaged to perform a review of a financial report, and who is not the auditor of the entity, does not perform the review in accordance with ASRE 2410^[*], as the practitioner ordinarily does not have the same understanding of the entity and its environment, including its internal control, as the auditor of the entity.

Although other Auditing Standards do not apply to review engagements, they include guidance which may be helpful to auditors performing reviews covered by this Auditing Standard.

Relevant ethical requirements^[5] govern the auditor’s professional responsibilities in the following areas: independence, integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.  (Ref: Para. 8)

The elements of quality control that are relevant to an individual engagement include leadership responsibilities for quality on the engagement, ethical requirements, acceptance and continuance of client relationships and specific engagements, assignment of engagement teams, engagement performance, and monitoring.  ASQC 1 and ASA 220^[6] include guidance that may be helpful.  (Ref: Para. 9)

An attitude of professional scepticism denotes that the auditor makes a critical assessment, with a questioning mind, of the validity of evidence obtained and is alert to evidence that contradicts or brings into question the reliability of documents or representations by management of the entity.  ASA 200 includes guidance which may be helpful.^[*] (Ref: Para. 10)

Written agreement of the terms of the engagement helps to avoid misunderstandings regarding the nature of the engagement and, in particular, the objective and scope of the review, the responsibilities of management and, where appropriate, those charged with governance, the extent of the auditor’s responsibilities, the assurance obtained, and the nature and form of the report. The communication ordinarily covers the following matters:

1. the objective of a review of a financial report;
2. the scope of the review;
3. the responsibilities of management and, where appropriate, those charged with governance for:
   1. the preparation of the financial report in accordance with the applicable financial reporting framework including where relevant their fair presentation;
   2. establishing and maintaining effective internal control relevant to the preparation of the financial report; and
   3. making all financial records and related information available to the auditor;
4. agreement from management and, where appropriate, those charged with governance:
   1. to provide written representations to the auditor to confirm representations made orally during the review, as well as representations that are implicit in the entity’s records; and
   2. that where any document containing the financial report indicates that the financial report has been reviewed by the entity’s auditor, the auditor’s review report also will be included in the document; and
5. the anticipated form and content of the report to be issued, including the identity of the addressee of the report.

An illustrative engagement letter is set out in Appendix 1. The terms of engagement to review a financial report can also be combined with the terms of engagement to audit the annual financial report. ASA 210 includes guidance which may be helpful.^[*] (Ref: Para. 12)

Understanding the Entity and its Environment, Including its Internal Control

Under ASA 315 Identifying and Assessing the Risks of Material Misstatement, the auditor who has audited the entity’s financial report for one or more annual periods has obtained an understanding of the entity and its environment, including its internal control, as it relates to the preparation of the annual financial report, that was sufficient to conduct the audit. In planning a review of a financial report, the auditor needs to update this understanding. The auditor also needs to obtain a sufficient understanding of internal control as it relates to the preparation of the financial report subject to review, as it may differ from internal control as it relates to the preparation of the annual financial report.  (Ref: Para. 13)

The auditor needs to use the understanding of the entity and its environment, including its internal control, to determine the enquiries to be made and the analytical and other review procedures to be applied, and to identify the particular events, transactions or assertions to which enquiries may be directed or analytical or other review procedures applied.  (Ref: Para. 13)

The procedures performed by the auditor to update the understanding of the entity and its environment, including its internal control, ordinarily include the following:

1. reading the documentation, to the extent necessary, of the preceding year’s audit, reviews of prior period(s) of the current year, and corresponding period(s) of the prior year, to enable the auditor to identify matters that may affect the current-period financial report;
2. considering any significant risks, including the risk of management override of controls, that were identified in the audit of the prior year’s financial report;
3. reading the most recent annual and comparable prior period financial report;
4. considering materiality with reference to the applicable financial reporting framework as it relates to the financial report, to assist in determining the nature and extent of the procedures to be performed and evaluating the effect of misstatements;
5. considering the nature of any corrected material misstatements and any identified uncorrected immaterial misstatements in the prior year’s financial report;
6. considering significant financial accounting and reporting matters that may be of continuing significance, such as material weaknesses in internal control;
7. considering the results of any audit procedures performed with respect to the current year’s financial report;
8. considering the results of any internal audit performed and the subsequent actions taken by management;
9. enquiring of management about the results of management’s assessment of the risk that the financial report may be materially misstated as a result of fraud;
10. enquiring of management about the effect of changes in the entity’s business activities;
11. enquiring of management about any significant changes in internal control and the potential effect of any such changes on the preparation of the financial report; and
12. enquiring of management of the process by which the financial report has been prepared and the reliability of the underlying accounting records to which the financial report is agreed or reconciled. (Ref: Para. 13)

The auditor needs to determine the nature of the review procedures, if any, to be performed for components and, where applicable, communicate these matters to other auditors involved in the review. Factors considered ordinarily include the materiality of, and risk of misstatement in, the financial information of the component, and the auditor’s understanding of the extent to which internal control over the preparation of such financial information is centralised or decentralised.  (Ref: Para. 13)

Obtaining an understanding of the entity and its environment enables the auditor to focus the enquiries made, and the analytical and other review procedures applied in performing a review of the financial report in accordance with this Auditing Standard. As part of obtaining this understanding, ordinarily the auditor makes enquiries of the predecessor auditor and, where practicable, reviews the predecessor auditor’s documentation for the preceding annual audit and for any prior periods in the current year that have been reviewed by the predecessor auditor. In doing so, ordinarily the auditor considers the nature of any corrected misstatements, and any uncorrected misstatements aggregated by the auditor, any significant risks, including the risk of management override of controls, and significant accounting and any reporting matters that may be of continuing significance, such as material weaknesses in internal control.  (Ref: Para. 14)

(Ref: Para. 15)

The auditor needs to use professional judgement and consider qualitative and quantitative factors in determining materiality. 

Ordinarily, the auditor’s consideration of materiality for a review of a financial report is based on the period financial data and accordingly, materiality based on interim period financial data may be less than materiality for annual financial data. If the entity’s business is subject to cyclical variations or if the financial results for the current period show an exceptional decrease or increase compared to prior periods and expected results for the current year, the auditor may, for example, conclude that materiality is more appropriately determined using a normalised figure for the period.

The auditor’s consideration of materiality, in evaluating the effects of misstatements, is a matter of professional judgement and is affected by the auditor’s perception of the financial information needs of users of the financial report. 

If the applicable financial reporting framework contains a definition of materiality, it will ordinarily provide a frame of reference to the auditor when determining materiality for planning and performing the review. 

The auditor needs, when relevant, to consider materiality from the perspective of both the entity and the consolidated entity.

A review ordinarily does not require tests of the accounting records through inspection, observation or confirmation.  Procedures for performing a review of a financial report ordinarily are limited to making enquiries, primarily of persons responsible for financial and accounting matters and applying analytical and other review procedures, rather than corroborating information obtained concerning matters relating to the financial report.  The auditor’s understanding of the entity and its environment, including its internal control, the results of the risk assessments relating to the preceding audit and the auditor’s consideration of materiality as it relates to the financial report, affects the nature and extent of the enquiries made, and analytical and other review procedures applied.  (Ref: Para. 16)

The auditor ordinarily performs the following procedures:

1. Reading the minutes of the meetings of shareholders, those charged with governance and other appropriate committees to identify matters that may affect the financial report, and enquiring about matters dealt with at meetings for which minutes are not available that may affect the financial report.
2. Considering the effect, if any, of matters giving rise to a modification of the audit or auditor’s review report, accounting adjustments or unadjusted misstatements, at the time of the previous audit or reviews.
3. Communicating, where appropriate, with other auditors who are performing a review of the financial report of the entity’s significant components.
4. Enquiring of members of management responsible for financial and accounting matters, and others as appropriate, about the following:
   1. whether the financial report has been prepared and presented in accordance with the applicable financial reporting framework;
   2. whether there have been any changes in accounting principles or in the methods of applying them;
   3. whether any new transactions have necessitated the application of a new accounting principle;
   4. whether the financial report contains any known uncorrected misstatements;
   5. unusual or complex situations that may have affected the financial report, such as a business combination or disposal of a segment of the business;
   6. significant assumptions that are relevant to the fair value measurement or disclosures and management’s intention and ability to carry out specific courses of action on behalf of the entity;
   7. whether related party transactions have been appropriately accounted for and disclosed in the financial report;
   8. significant changes in commitments and contractual obligations;
   9. significant changes in contingent assets and contingent liabilities including litigation or claims;
   10. compliance with debt covenants;
   11. matters about which questions have arisen in the course of applying the review procedures;
   12. significant transactions occurring in the last several days of the period or the first several days of the next period;
   13. knowledge of any fraud or suspected fraud affecting the entity involving:
       • management;
       • employees who have significant roles in internal control; or
       • others where the fraud could have a material effect on the financial report; and
   14. knowledge of any allegations of fraud, or suspected fraud, affecting the entity’s financial information communicated by employees, former employees, analysts, regulators or others; and
   15. knowledge of any actual or suspected non-compliance with laws and regulations that could have a material effect on the financial report. If the auditor becomes aware of any actual or suspected non-compliance with laws and regulations ASA 250 Consideration of Laws and Regulations in an Audit of a Financial Report provides guidance. (Ref: Para. 20)
5. Applying analytical procedures to the financial report designed to identify relationships and individual items that appear to be unusual and that may reflect a material misstatement in the financial report. Analytical procedures may include ratio analysis and statistical techniques such as trend analysis or regression analysis and may be performed manually or with the use of computer-assisted auditing techniques. Appendix 2 to this Auditing Standard contains examples of analytical procedures the auditor may consider when performing a review of a financial report.
6. Reading the financial report and considering whether anything has come to the auditor’s attention that causes the auditor to believe that the financial report is not in accordance with the applicable financial reporting framework. (Ref: Para. 16)

The auditor may perform many of the review procedures before or simultaneously with the entity’s preparation of the financial report.  For example, it may be practicable to update the understanding of the entity and its environment, including its internal control, and begin reading applicable minutes before the end of the period.  Performing some of the review procedures earlier in the period also permits early identification and consideration of significant accounting matters affecting the financial report.  (Ref: Para. 16)

The auditor performing a review of the financial report is also the auditor of the annual financial report of the entity. For convenience and efficiency, the auditor may decide to perform certain audit procedures concurrently with the review of the financial report. For example, information gained from reading the minutes of meetings of the board of directors in connection with the review of the financial report may also be used for the annual audit. The auditor may decide also to perform, at the time of the review, auditing procedures that would need to be performed for the purpose of the audit of the annual financial report, for example, performing auditing procedures on:

1. significant or unusual transactions that occurred during the period, such as business combinations, restructurings, or significant revenue transactions; or
2. opening balances (when applicable). (Ref: Para. 16)

A review of a financial report ordinarily does not require corroborating the enquiries about litigation or claims.  It is, therefore, ordinarily not necessary to send an enquiry letter to the entity’s lawyer.  Direct communication with the entity’s lawyer with respect to litigation or claims, or alternative procedures, may, however, be appropriate if a matter comes to the auditor’s attention that causes the auditor to question whether the financial report is in accordance with the applicable financial reporting framework.  (Ref: Para. 16)

The auditor may obtain evidence that the financial report agrees or reconciles with the underlying accounting records by tracing the financial report to:

1. the accounting records, such as the general ledger, or a consolidating schedule that agrees or reconciles with the accounting records; and
2. other supporting data in the entity’s records as necessary. (Ref: Para. 17)

The auditor need not perform procedures to identify events occurring after the date of the auditor’s review report.  (Ref: Para. 18)

Events or conditions which may cast significant doubt on the entity’s ability to continue as a going concern may have existed at the date of the annual financial report, or may be identified as a result of enquiries of management or in the course of performing other review procedures.  When such events or conditions come to the auditor’s attention, the auditor needs to enquire of those charged with governance as to their plans for future action, such as their plans to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital.  The auditor needs to enquire also as to the feasibility of the plans of those charged with governance and whether they believe that the outcome of these plans will improve the situation.  Ordinarily, the auditor considers, based on procedures performed, whether it is necessary to corroborate the feasibility of the plans of those charged with governance and whether the outcome of these plans will improve the situation.  (Ref: Para. 19)

For example, if the auditor’s review procedures lead the auditor to question whether a significant sales transaction is recorded in accordance with the applicable financial reporting framework, the auditor performs additional procedures sufficient to resolve the auditor’s questions, such as discussing the terms of the transaction with senior marketing and accounting personnel or reading the sales contract.  (Ref: Para. 21)

(Ref: Para. 22)

When comparative information is included in the first financial report and the auditor is unable to obtain sufficient appropriate review evidence to achieve the review objective, a limitation on the scope of the review exists and the auditor needs to modify the auditor’s review report.  Ordinarily, a restriction on the scope of the auditor’s work will result in a qualified (“except for”) conclusion.  In such cases, ordinarily an auditor encourages clear disclosure in the financial report, that the auditor has been unable to review the comparatives.

When comparative information is included in the first financial report and the auditor believes a material adjustment should be made to the financial report, under paragraph 39, the auditor needs to modify the auditor’s review report.

When an entity has come into existence only within the first financial reporting period, comparative information will not be provided in the first financial report and no modified auditor’s review report is required.

Accounting Standard AASB 101 Presentation of Financial Statements provides requirements and explanatory guidance relating to comparative information included in a financial report prepared in accordance with Australian Accounting Standards.  Accounting Standard AASB 1 First‑time Adoption of Australian Accounting Standards provides requirements and guidance relating to comparative information when an entity adopts Australian Accounting Standards for the first time.

(Ref: Para. 23)

A review of a financial report, in contrast to an audit engagement, is not designed to obtain reasonable assurance that the financial report is free from material misstatement.  However,  misstatements which come to the auditor’s attention, including inadequate disclosures, need to be evaluated individually and in the aggregate to determine whether a material adjustment is required to be made to the financial report for it to be prepared, in all material respects, in accordance with the applicable financial reporting framework. 

The auditor needs to exercise professional judgement in evaluating the materiality of any misstatements that the entity has not corrected. Ordinarily, the auditor considers matters such as the nature, cause and amount of the misstatements, whether the misstatements originated in the preceding year or current year, and the potential effect of the misstatements on future interim or annual periods. 

The auditor may designate an amount below which misstatements need not be aggregated, because the auditor expects that the aggregation of such amounts clearly would not have a material effect on the financial report.  In so doing, under paragraph 15, the auditor needs to consider the fact that the determination of materiality involves quantitative as well as qualitative considerations and that misstatements of a relatively small amount could nevertheless have a material effect on the financial report.

The auditor needs to endeavour to obtain additional representations as are appropriate to matters specific to the entity’s business or industry. An illustrative representation letter is set out in Appendix 1.  (Ref: Para. 24)

An auditor conducting a review engagement under this auditing standard is not required to comply with ASA 720^[*], however    ASA 720 includes guidance which may be useful. ASA 720 requires the auditor to read the other information that accompanies the financial report to consider whether there is a material inconsistency with the financial report. If the auditor identifies a material inconsistency, the auditor needs to consider whether the financial report or the other information needs to be amended.  If an amendment is necessary in the financial report and those charged with governance refuse to make the amendment, the auditor needs to consider the implications for the auditor’s review report.  If an amendment is necessary in the other information and those charged with governance refuse to make the amendment, the auditor may consider including an Other Information paragraph in the auditor’s review report and describe the material misstatement. For example, those charged with governance may present alternative measures of earnings that more positively portray financial performance than the financial report, and such alternative measures are given excessive prominence, or are not clearly defined, or not clearly reconciled to the financial report such that they are confusing and potentially misleading.  (Ref: Para. 26)

For a review of a half-year financial report under the Corporations Act 2001 (Act), withholding the issuance of the auditor’s review report and/or withdrawing from the review engagement are not options available under the Act. (Ref: Para. 30)

While reading the other information for the purpose of identifying material inconsistencies, an apparent material misstatement of fact may come to the auditor’s attention (that is, information, not related to matters appearing in the financial report, that is incorrectly stated or presented).  When discussing the matter with the entity’s management, ordinarily the auditor considers the validity of the other information and management’s responses to the auditor’s enquiries, whether valid differences of judgement or opinion exist and whether to request management to consult with a qualified third party to resolve the apparent misstatement of fact.  If an amendment is necessary to correct a material misstatement of fact and management refuses to make the amendment, ordinarily the auditor considers taking further action as appropriate, such as notifying those charged with governance and, if necessary, obtaining legal advice, and considering the implications for the auditor’s review report.  ASA 720^[*] includes guidance which may be beneficial.  (Ref: Para. 27)

Communications with management and/or those charged with governance are made as soon as practicable, either orally or in writing.  The auditor’s decision whether to communicate orally or in writing ordinarily is affected by factors such as the nature, sensitivity and significance of the matter to be communicated and the timing of the communications.  If the information is communicated orally, under paragraph 55, the auditor needs to document the communication.  (Ref: Para. 28 and 31)

The determination of which level of management may also be informed is affected by the likelihood of collusion or the involvement of a member of management.  Refer to ASA 250 for further guidance which may be helpful. (Ref: Para. 31)

Law or regulation may restrict the auditor’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 auditor is required to report identified or suspected non-compliance with laws and regulation to an appropriate authority pursuant to anti-money laundering legislation. In these circumstances, the issues considered by the auditor may be complex and the auditor may consider it appropriate to obtain legal advice. ASA 250 includes guidance which may be helpful, including where there may be additional communication required.^[7] (Ref: Para. 31)

As a result of performing a review of a financial report, the auditor may become aware of matters that in the opinion of the auditor are both important and relevant to those charged with governance in overseeing the financial reporting and disclosure process.  (Ref: Para. 32)

(Ref: Para. 33-34)

Appendix 4 contains illustrations of the auditor’s review reports incorporating the elements in paragraphs 33 to 50. With the exception of the Conclusion and Basis for Conclusion sections, this Auditing Standard does not establish requirements for ordering the elements of the auditor’s review report. This Auditing Standard requires the use of specific headings, which are intended to assist in making reports more consistent and recognisable. Also refer to A55 and A56 for guidance on the ordering of the review report.

Paragraph 34 (f) includes the conclusion required for reviews of financial reports conducted in accordance with the Corporations Act 2001, other financial reports prepared under a fair presentation framework and a compliance framework. In some cases, law or regulation governing the review of a financial report may prescribe wording for the auditor’s conclusion that is different from the wording described in paragraph 34(f). Although the auditor may be obliged to use the prescribed wording, the auditor’s responsibilities as described in this Auditing Standard for coming to the conclusion remain the same. ASA 700 includes guidance which may be helpful.^[8] Illustrative auditor’s review reports are set out in Appendices 3 and 4. 

(Ref: Para. 40-41)

If matters have come to the auditor’s attention that cause the auditor to believe that the financial report is or may be materially affected by a departure from the applicable financial reporting framework, and those charged with governance do not correct the financial report, the auditor needs to modify the auditor’s review report. If the information that the auditor believes is necessary for adequate disclosure is not included in the financial report, the auditor needs to modify the auditor’s review report and, if practicable, include the necessary information in the auditor’s review report. Refer to ASA 705 Modifications to the Opinion in the Independent Auditor’s Report and ASRE 2400 Review of a Financial Report Performed by an Assurance Practitioner Who is Not the Auditor of the Entity for guidance as to appropriate wording to use when issuing a modified conclusion. Also illustrative auditor’s review reports with a qualified conclusion are set out in Appendix 4.

Departures from the applicable financial reporting framework, may result in an adverse conclusion. An illustrative auditor’s review report with an adverse conclusion is set out in Appendix 4. 

(Ref: Para. 42)

Ordinarily, a limitation on scope prevents the auditor from completing the review.

The auditor needs to refuse to accept an engagement to review a financial report if the auditor’s preliminary knowledge of the engagement circumstances indicates that the auditor would be unable to complete the review because there will be a limitation on the scope of the auditor’s review imposed by management of the entity.  (Ref: Para. 43)

If, after accepting the engagement, management imposes a limitation on the scope of the review,  the auditor needs to request the removal of that limitation. If management refuses to do so, the auditor is unable to complete the review and express a conclusion. In such cases, the auditor needs to communicate, in writing, to the appropriate level of management and those charged with governance, the reason(s) why the review cannot be completed.  Nevertheless, if a matter comes to the auditor’s attention that causes the auditor to believe that a material adjustment to the financial report is necessary for it to be prepared, in all material respects, in accordance with the applicable financial reporting framework, under paragraphs 27, 28 and 30, the auditor needs to communicate such matters to the appropriate level of management and, where appropriate, those charged with governance.  (Ref: Para. 44)

The auditor needs to consider the legal and regulatory requirements, including whether there is a legal requirement for the auditor to issue a report. If there is such a requirement, the auditor needs to disclaim a conclusion and provide in the auditor’s review report the reason why the review cannot be completed. However, if a matter comes to the auditor’s attention that causes the auditor to believe that a material adjustment to the financial report is necessary for it to be prepared, in all material respects, in accordance with the applicable financial reporting framework the auditor needs to communicate such a matter in the report.  (Ref: Para. 45)

(Ref: Para. 48)

A limitation on scope may occur due to circumstances other than a limitation on scope imposed by management or those charged with governance. In such circumstances, the auditor is ordinarily unable to complete the review and express a conclusion, and is guided by paragraphs 39 and 49.  There may be, however, some rare circumstances where the limitation on the scope of the auditor’s work is clearly confined to one or more specific matters that, while material, are not in the auditor’s judgement pervasive to the financial report.  In such circumstances,  the auditor needs to modify the auditor’s review report by indicating that, except for the effects of the matter which is described in the Basis for Qualified Conclusion section of the auditor’s review report, and the review was conducted in accordance with ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity.  Illustrative auditor’s review reports with a qualified conclusion are set out in Appendix 4.

The auditor may have expressed a qualified opinion on the audit of the latest annual financial report because of a limitation on the scope of that audit. The auditor needs to consider whether that limitation on scope still exists and, if so, the implications for the auditor’s review report.

(Ref: Para. 49 and 50)

The auditor may have alerted users to the existence of a material uncertainty relating to an event or condition that casts significant doubt on the entity’s ability to continue as a going concern by adding a separate section under the heading Material Uncertainty Related to Going Concern to a prior audit or auditor’s review report.  If the material uncertainty still exists and adequate disclosure is made in the financial report, the auditor needs to continue to alert users by adding a “Material Uncertainty Related to Going Concern” section to the auditor’s review report to highlight the continued material uncertainty.

If, as a result of enquiries or other review procedures, a material uncertainty relating to an event or condition comes to the auditor’s attention that casts significant doubt on the entity’s ability to continue as a going concern, and adequate disclosure is made in the financial report, the auditor alerts users by adding a “Material Uncertainty Related to Going Concern” section to the auditor’s review report.

A Material Uncertainty Related to Going Concern section is preferably included after the Basis for Conclusion paragraph. ASA 570 Going Concern provides information that the auditor may find helpful in considering going concern in the context of the review engagement.

Ordinarily, a significant uncertainty in relation to any other matter, the resolution of which may materially affect the financial report, would warrant an emphasis of matter paragraph in the auditor’s review report. An emphasis of matter paragraph is preferably included after the Basis for Conclusion paragraph, or after the Material Uncertainty Related to Going Concern section if relevant.

The auditor’s review report on special purpose financial statements shall include an Emphasis of Matter paragraph alerting users of the assurance practitioner’s report that the financial statements are prepared in accordance with a special purpose framework and that, as a result, the financial statements may not be suitable for another purpose.

The terms of the engagement include agreement by those charged with governance that, where any document containing a financial report indicates that the financial report has been reviewed by the entity’s auditor, the auditor’s review report will be also included in the document.  If those charged with governance have not included the auditor’s review report in the document, ordinarily the auditor considers seeking legal advice to assist in determining the appropriate course of action in the circumstances.  (Ref: Para. 12)

If the auditor has issued a modified auditor’s review report and those charged with governance issue the financial report without including the modified auditor’s review report in the document containing the financial report, ordinarily the auditor considers seeking legal advice to assist in determining the appropriate course of action in the circumstances, and the possibility of resigning from the appointment to audit the annual financial report.

Considerations Specific to Public Sector Entities

The auditor needs to communicate the terms of engagement to the entity subject to the review. When communicating the terms of engagement,  an engagement letter helps to avoid misunderstandings regarding the nature of the engagement and, in particular, the objective and scope of the review, management’s responsibilities, the extent of the auditor’s responsibilities, the assurance obtained, and the nature and form of the report.  Law or regulation governing review engagements in the public sector ordinarily mandates the appointment of the auditor.  Nevertheless, an engagement letter setting out the matters referred to in paragraph A8 may be useful to both the public sector auditor and the client.  Public sector auditors, therefore, consider agreeing with the client the terms of a review engagement by way of an engagement letter.  (Ref: Para. 12)

In the public sector, the auditor’s statutory audit obligation may extend to other work, such as a review of interim financial information.

Where this is the case, the public sector auditor cannot avoid such an obligation and, consequently, may not be in a position not to accept, or to withdraw from a review engagement.  The public sector auditor also may not be in the position to resign from the appointment to audit the annual financial report.  (Ref: Para. 30(b)‑30(c) and 37)

The auditor needs to communicate to those charged with governance and consider the implications for the review when a matter comes to the auditor’s attention that causes the auditor to believe in the existence of fraud or actual or suspected non‑compliance by the entity with laws and regulations.  In the public sector, the auditor may be subject to statutory or other regulatory requirements to report such a matter to regulatory or other public authorities.  (Ref: Para. 32)

(Ref: Para. 55)

The auditor needs to prepare documentation that enables an experienced auditor having no previous connection with the engagement to understand the nature, timing and extent of the enquiries made and analytical and other review procedures applied, information obtained, and any significant matters considered during the performance of the review, including the disposition of such matters.