Lecture on Standard on Review Engagements (SRE) 2400

Introduction

• Lecturer: C. Balakrishna from Lecture Pedia
• Topic: Revision of SRE 2400
• Series: Two main standards SRE 2400 and SRE 2014-10
• Objective: Understand the difference between audit and review, as well as the application of SRE 2400 and SRE 2014-10

Key Concepts

Audit vs. Review

• Audit: Provides reasonable assurance and positively worded opinions
  • E.g., "Financial statements are free from material misstatements."
• Review: Provides limited assurance and negatively worded conclusions
  • E.g., "Based on our procedures, we have not come across any material misstatements."

Assurance Levels

• Reasonable Assurance: Confirms financial statements are free from material misstatements
• Limited Assurance: States financial statements may have misstatements, but none were found in the review

Conducting Audits and Reviews

• Audit: Must be conducted by a Chartered Accountant (CA)
• Review: Also conducted by a CA, as per the standards

Standards on Review Engagements

SRE 2400 and SRE 2014-10

• SRE 2400: Engagement to review historical financial statements
• SRE 2014-10: Review of interim financial statements by the entity's independent auditor

Application of Standards

• SRE 2400: Used when reviewed by a CA other than the entity's auditor
  • Example: A company needs financial statements reviewed for a bank loan agreement
  • Example: A partnership firm voluntarily wants its financials reviewed
• SRE 2014-10: Used when reviewed by the statutory auditor of the company (e.g., for listed companies as per LODR regulations)

Ethical Requirements and Preconditions

• Practitioner (Review): Must comply with ethical standards including integrity, objectivity, and independence
• Preconditions for Engagement:
  • Acceptable financial reporting framework
  • Management’s agreement on responsibilities and providing necessary information
  • Unrestricted access to relevant data within the entity

Review Engagement Process

Steps in Review Engagement

1. Understand Entity and Environment
2. Determine Materiality: Professional judgment required
3. Design and Perform Review Procedures
   • Mainly inquiry and analytical procedures
   • Additional procedures in specific circumstances (e.g., related parties, non-compliance)

Specific Circumstances

• Related Parties: Alert to uncommunicated relationships/transactions
• Non-compliance: Communicate with management; assess need for external reporting
• Going Concern: Assess management's future action plans
• Use of others' work: Assess adequacy for reliance

Written Representations and Conclusions

Written Representations

• Responsibilities regarding financial statements
• Related party transactions and non-compliance disclosures
• Assess integrity and reliability of management's representations

Types of Conclusions

• Unmodified Conclusion: No issues found that would mislead as per the framework
• Modified Conclusion: Include qualified, adverse, or disclaimer of conclusion

Presentation and Documentation

Practitioner Report

• Components:
  • Title and address
  • Introductory paragraph
  • Management and practitioner responsibilities
  • Conclusion paragraph
  • Basis for conclusion
  • Signature and date

Additional Reporting Elements

• Emphasis of Matter and Other Matter Paragraphs: Highlight important details or additional information
• Documentation: Maintain records of the review process

Conclusion

• Overview of SRE 2400 and practical applications
• Further discussions will cover SRE 2014-10