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Be clearly distinguishable from an audit of financial statements. Further, proposed ISRE should be capable of being used on a stand-alone basis forengagement performance purposes, without the need for practitioners to refer to other International Engagement Standards of the IAASB.

The ability to clearly distinguish a review of financial statements from an audit of financialstatements is a matter of public interest. The proposed ISRE aims to describe the review as adistinct assurance engagement which is different from an audit in key respects, including theperformance of the engagement and reporting. To properly communicate the limited assurance obtained inthe review to users of the financial statements, the practitioner is accordingly required to conclude and report on the financial statements in the form required under the proposed ISRE.

Theproposed standard:Requires the practitioner to obtain an understanding of the entity and its environmentsufficient to identify areas in the financial statements where material misstatements arelikely to arise, so procedures can be designed to address those areas.

This will make thereview engagement more effective and more efficient in design. Sets out more clearly the circumstances where additional procedures are needed that is,when the practitioner becomes aware of a matter s that causes the practitioner to believethat the financial statements may be materially misstated , to promote greater consistencyof practice. The Appendix to this Explana to ry Memorandum contains an overview of the review engagementunder the proposed ISRE , in diagrammatic form.

It highlights key phases of the engagement andincludes relevant paragraph references to the requirements of the proposed ISRE. In particular, thisobjective addresses the procedures ordinarily expected to provide an adequate basis for thepractitioner to conclude and report on the financial statements in the form required by theproposed ISRE.

Consistent with the extant ISRE , the proposed standard emphasizes the moreprocedural nature of a review engagement in contrast to an audit. The objective, however, alsoaddresses the need to evaluate the sufficiency and appropriateness of evidence obtained. While the ISRE specifies types of procedures to be performed at a minimum that is, primarily inquiry andanalytical procedures , it does not specify the nature and extent of those procedures because thatis expected to vary between engagements.

Accordingly the practitioner must, in each reviewengagement, evaluate the sufficiency and appropriateness of the evidence obtained through theprocedures performed. That evidence provides the basis for the practitioner to conclude andreport on the financial statements in the form required by the proposed ISRE.

The IAASB debated whether practitioners need a benchmark to be able to evaluate thesufficiency and appropriateness of the evidence obtained in the review. This member believes that, rather than focusing on evidence, the objectives andrequirements in the ISRE should place more emphasis on the nature of the procedures performedand the limited assurance that results from performing those procedures.

The IAASB believes, however, that the evidential basis for a review must be sufficient andappropriate for the practitioner to conclude and report on the financial statements in the formrequired by the ISRE , and that it is important to recognize this essential element of a review asan assurance engagement.

This ISRE is to be applied, adapted as necessary, to reviews of other his to rical financialinformation. Limited assurance engagements performed for information other than his to ricalfinancial information are performed under ISAE Quality control systems, policies and procedures are the responsibility of the firm.

The provisions of this ISRE regarding quality control at the level ofindividual review engagements are premised on the basis that firms are subject to ISQC 1, 4 ornational requirements that are at least as demanding, when performing review engagements.

Ref: Para. The review of his to rical financial statements is a limited assurance engagement, as describedin the International Framework for Assurance Engagements the Assurance Framework. A9—A10 6. Areview engagement conducted in accordance with this ISRE that includes compliance withrelevant ethical requirements enables the practitioner to form that conclusion. In a review of financial statements, the practitioner performs procedures, primarily inquiryand analytical procedures, to obtain sufficient appropriate evidence as the basis for aconclusion on the financial statements as a whole, expressed in accordance with therequirements of this ISRE.

A11 8. If the practitioner becomes aware of a matter that causes the practitioner to believe thefinancial statements may be materially misstated, the practitioner designs and performssuch additional procedures as the practitioner considers necessary in the circumstances. This ISRE contains the objectives of the practitioner in following the ISRE , which providethe context in which the requirements of this ISRE are set and are intended to assist thepractitioner in understanding what needs to be accomplished in the review engagement.

In addition, this ISRE contains introduc to ry material, definitions, and application and otherexplana to ry material that provide context relevant to a proper understanding of the ISRE. The application and other explana to ry material provides further explanation of therequirements and guidance for carrying them out.

While such guidance does not itself imposea requirement, it is relevant to the proper application of the requirements. The application andother explana to ry material may also provide background information on matters addressed inthis ISRE that assist in the application of the requirements.

Effective Date This ISRE is effective for reviews of financial statements for periods ending on or after[date]. If the practitioner is not able to form a conclusion in accordance with this ISRE on thefinancial statements, the practitioner is required to either disclaim a conclusion in the reportprovided for the engagement or, where appropriate, withdraw from the engagement ifwithdrawal is possible under applicable law or regulation.

Para A12—A14 A15—A17 Analyticalprocedures also encompass such investigation as is necessary of identified fluctuationsor relationships that are inconsistent with other relevant information or that differ fromexpected values by a significant amount. The financial reporting frameworkmay be a fair presentation framework or a compliance framework. The term includes the practitioner or other members of the engagementteam, or, as applicable, the firm.

The financial reporting framework maybe a fair presentation framework or a compliance framework. The practitioner shall have an understanding of the entire text of this ISRE , including itsapplication and other explana to ry material, to understand its objectives and to apply itsrequirements properly.

A18 Complying with Relevant Requirements The practitioner shall comply with each requirement of this ISRE unless a requirement is notrelevant for the engagement, for example if the circumstances addressed by the requirementdo not exist in the engagement.

The practitioner shall not represent compliance with this ISRE unless the practitioner hascomplied with all the requirements of this ISRE relevant to the review engagement. Ethical Requirements The practitioner shall comply with relevant ethical requirements, including those pertaining to independence, relating to an engagement to review financial statements.

The practitioner shall plan and perform the engagement with professional skepticismrecognizing that circumstances may exist that cause the financial statements to be materiallymisstated.

A21—A24 The practitioner shall exercise professional judgment in planning and performing theengagement. The engagement partner shall take responsibility for the overall quality of each reviewengagement to which that partner is assigned, including for: Ref: Para. Throughout the engagement, the engagement partner shall remain alert, through observationand making inquiries as necessary, for evidence of non-compliance with relevant ethicalrequirements by members of the engagement team.

A33 The practitioner shall be satisfied that appropriate procedures regarding the acceptance andcontinuance of client relationships and review engagements have been followed, and shalldetermine that conclusions reached in this regard are appropriate. A34 If the engagement partner obtains information that would have caused the firm to decline theengagement had that information been available earlier, the engagement partner shallcommunicate that information promptly to the firm, so that the firm and the engagementpartner can take the necessary action.

Unless required by law or regulation, the practitioner shall not accept a reviewengagement if: Ref: Para. A35—A37 a b c d e The practitioner is unable to identify the purpose for the review engagement and theintended users of the financial statements, or is not satisfied that there is a rationalpurpose for the engagement; Ref: Para. In order to establish whether the preconditions for a review engagement are present, prior to accepting the engagement the practitioner shall: a b Determine whether the financial reporting framework applied in the preparation of thefinancial statements is acceptable; and Ref: Para.

A42—A48 Obtain the agreement of management that it acknowledges and understands itsresponsibilities: Ref: Para. A49—A53 i ii For preparation of the financial statements in accordance with the applicablefinancial reporting framework, including, where relevant, their fair presentation;For such internal control as management determines is necessary to enable thepreparation of financial statements that are free from material misstatement,whether due to fraud or error; and iii To provide the practitioner with:a.

Access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentationand other matters;b. Additional information that the practitioner may request from managementfor the purpose of the review; andc.

Unrestricted access to persons within the entity from whom the practitionerdetermines it necessary to obtain evidence. If the preconditions for a review engagement are not present, the practitioner shall discuss thematter with management, and the engaging party if different. If changes cannot be made to meet the preconditions, the practitioner shall not accept the engagement unless required bylaw or regulation to do so.

However, an engagement conducted under such circumstancesdoes not comply with this ISRE. If it is discovered after the engagement has been accepted that one or more preconditions fora review engagement is not present, the practitioner shall discuss the matter withmanagement or those charged with governance, or with the engaging party if different, andshall determine: a b c Whether the matter can be resolved;Whether it is appropriate to continue with the engagement; andWhether and, if so, how to communicate the matter in the review report.

In these circumstances: Ref: Para. A A review conducted inaccordance with such law or regulation does not comply with this ISRE. A54 Agreeing the Terms of Engagement The practitioner shall agree the terms of the engagement with management or those chargedwith governance, as appropriate, prior to performing the engagement.

The agreed terms of engagement shall be recorded in an engagement letter or other suitableform of written agreement, and shall include: Ref: Para. A55—A56, A59 a b The objective and scope of the review;The responsibilities of the practitioner; c The responsibilities of management, including those in paragraph 30 b ; Ref: Para. A49—A53, A58 d e f g Recurring Engagements Identification of the applicable financial reporting framework for the preparation of thefinancial statements;A statement that the engagement is not an audit, and that the practitioner will notexpress an audit opinion on the financial statements;The intended use and distribution of the financial statements, and any restrictions oneither their use or their distribution; andReference to the expected form and content of the report to be issued by thepractitioner, and a statement that there may be circumstances in which the report maydiffer from its expected form and content.

On recurring review engagements, the practitioner shall assess whether circumstances,including changes in the engagement acceptance considerations, require the terms ofengagement to be revised and whether there is a need to remind management or thosecharged with governance, as appropriate, of the existing terms of the engagement.

The practitioner shall not agree to a change in the terms of the engagement where there is noreasonable justification for doing so. A61—A63 If, prior to completing the review engagement, the practitioner is requested to change theengagement to an engagement for which no assurance is obtained, the practitioner shalldetermine whether there is reasonable justification for doing so. A64—A65 If the terms of engagement are changed during the course of the engagement, thepractitioner and management or those charged with governance, as appropriate, shallagree on and record the new terms of the engagement in an engagement letter or othersuitable form of written agreement.

Communication with Management and Those Charged with Governance The practitioner shall communicate with management or those charged with governance, asappropriate, on a timely basis during the course of the review engagement. The practitioner shall determine materiality for the financial statements as a whole, and applythis materiality in designing the procedures and in evaluating the results obtained from thoseprocedures. A73—A76 The practitioner shall revise materiality for the financial statements as a whole in the event ofbecoming aware of information during the review that would have caused the practitioner to have determined a different amount initially.

The practitioner shall obtain an understanding of: Ref: Para. Designing and Performing Inquiry and Analytical Procedures The practitioner shall design and perform inquiry and analytical procedures to address allmaterial items in the financial statements, including disclosures, and to focus on addressingareas in the financial statements where material misstatements are likely to arise.

A82—A84 A85—A87 a The significant accounting policies used, and their application by management inpresenting the financial statements; A88—A91 The practitioner shall evaluate the sufficiency and appropriateness of the evidenceobtained from the inquiry and analytical procedures performed, and determine whether itis necessary to perform additional procedures if the results obtained do not adequatelyaddress areas in the financial statements where material misstatements are likely to arise.

A96—A During the review, the practitioner shall remain alert for arrangements or information thatmay indicate the existence of related party relationships or transactions that managementhas not previously identified or disclosed to the practitioner.


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