Review of Financial Information: formula sheet

Key formulas

Scope of SRE 2400 (Revised)

Review of historical financial statements + practitioner is not the entity's auditor

Both conditions must hold. For the entity's auditor reviewing interim information, SRE 2410 applies instead.

Objective of a review

Limited assurance conclusion on whether anything makes the practitioner believe the statements are not prepared, in all material respects, under the applicable framework

The conclusion is expressed in negative form.

Assurance level

Review = limited assurance; Audit = reasonable assurance

Limited assurance is a meaningful level, but lower than reasonable assurance.

Nature of procedures

Inquiry + analytical procedures (+ other procedures when a matter suggests possible material misstatement)

Tests of controls, inspection, observation and confirmation are not normally part of a review.

Form of conclusion

Audit: positive opinion; Review: negative-form conclusion

The review report says nothing came to attention. It does not say true and fair.

Acceptance test

Accept only if: ethics and quality requirements met + preconditions present + terms agreed in writing

Use this as a three-part checklist in any answer. If one part fails, do not accept until it is resolved.

Preconditions for a review

Acceptable framework + management acknowledges its responsibilities (preparation, internal control, access)

Access means all relevant information, additional information requested, and unrestricted access to people in the entity.

Level of assurance

Review = limited assurance; Audit = reasonable assurance

The engagement letter must make clear that the review gives limited assurance and is not an audit.

Content of engagement letter

Objective + scope + practitioner's responsibilities + management's responsibilities + framework + expected form of report

State that the review gives limited assurance and is not an audit, and include the other required terms.

Mindset requirements

Professional skepticism + professional judgment throughout

Both are required through planning and performance, not only at acceptance.

SRE 2400 para 44 – requirement

Determine materiality for the financial statements as a whole → apply it (a) in designing procedures and (b) in evaluating identified misstatements

Learn this as a two-use rule: design and evaluate.

SRE 2400 para A71 – basis of judgment

Materiality = judgment based on the common financial information needs of users as a group, affected by size, nature or both

Do not consider the effect on specific individual users.

Illustrative working

Materiality = chosen benchmark × chosen percentage

This is a working method, not a prescribed formula. The standard sets no percentage. Justify both choices.

Evaluation of misstatements

Compare each misstatement and the total of uncorrected misstatements with materiality; also consider nature

A misstatement below the amount can still be material because of its nature.

Nature of assurance

Review = limited assurance (negative form of conclusion); Audit = reasonable assurance

Procedures in a review are mainly inquiry and analytical procedures, so evidence is less than in an audit.

Core review procedures

Inquiry + Analytical procedures + Other procedures (when needed)

Other procedures are added when the first two do not give enough evidence or when a possible misstatement appears.

Analytical procedure comparison

Variation = Current figure − Expected figure; Variation % = (Variation ÷ Expected figure) × 100

Expected figure may come from prior period, budget, industry data or related non-financial data. Investigate variations that are significant or unexpected.

Trigger for extra work

Aware (or have reason to believe) statements may be materially misstated → design and perform additional procedures

Continue until you can conclude, or you cannot and must consider the effect on your conclusion.

Form of limited assurance conclusion

Nothing has come to my attention that causes me to believe the financial statements are not prepared, in all material respects, in accordance with the applicable framework

Negative form. Use it only when evidence is enough and no material uncorrected misstatement exists.

Misstatement rule

Accumulate misstatements (other than clearly trivial) → ask management to correct → judge individually and in aggregate against materiality → modify the conclusion if material and uncorrected

Management is asked to correct. You do not correct the statements yourself.

Insufficient evidence rule

Evidence not enough → perform further procedures → if still not enough, scope limitation → qualified conclusion or disclaimer, or withdraw where possible

Do not issue an unmodified conclusion on a scope limitation.

Written representation rule

Representations support, but do not replace, inquiry and analytical procedures

If management refuses or integrity is in doubt, consider the effect on the conclusion, including disclaimer or withdrawal.

Subsequent events and going concern

Inquire about events up to the report date → consider adjustment or disclosure → for going concern doubt, assess plans and adequacy of disclosure

A material uncertainty that is adequately disclosed does not modify the conclusion. Inadequate disclosure leads to a qualified or adverse conclusion depending on materiality and pervasiveness. If the going concern basis is inappropriate, the conclusion is adverse.

Unmodified conclusion (negative form)

Nothing has come to attention that causes belief that FS are not prepared, in all material respects, under the applicable framework

Used when evidence is sufficient and there are no material uncorrected misstatements. Limited assurance, so no positive opinion.

Qualified conclusion

Misstatement material but NOT pervasive → "except for the effects of the matter described in the Basis section". Evidence limitation with possible effects material but not pervasive → "except for the possible effects of the matter described in the Basis section"

Use "effects" for a misstatement and "possible effects" for a scope limitation. The report must also include a Basis for Qualified Conclusion section before the conclusion.

Adverse conclusion

Misstatement material AND pervasive → conclusion that FS are not prepared, in all material respects, under the framework

Applies to misstatement, not to a scope limitation. Needs a basis section.

Pervasive limitation of evidence

Evidence not obtainable + possible effects material and pervasive → withdraw where practicable and permitted by law; otherwise disclaim a conclusion

Consider withdrawal first. Disclaimer is the fallback if withdrawal is not practicable before issuing the report. A disclaimer needs a basis section.

Elements of the review report

Title → Addressee → Introductory paragraph → Management's responsibility → Practitioner's responsibility (limited assurance) → Conclusion → Signature, date, place

Add a basis section before the conclusion when it is modified. Emphasis of Matter or Other Matter paragraphs may be added where needed.

Audit vs review

Audit = reasonable assurance, positive opinion; Review = limited assurance, negative-form conclusion

Review procedures are mainly inquiry and analytical procedures, not full audit testing.

Quick revision

• A review gives limited assurance; an audit gives reasonable assurance.
• The review conclusion is in negative form: nothing has come to our attention that causes us to believe the statements are materially misstated.
• The practitioner must be independent and competent, and the preconditions must be met before acceptance.
• Agree the terms of the engagement in an engagement letter before starting.
• Management's responsibility for the financial statements and for providing access to information must be acknowledged.
• Materiality in a review is applied to plan procedures and to evaluate misstatements.
• Main procedures are inquiry and analytical procedures, not extensive testing like an audit.
• If something suggests the statements may be materially misstated, perform additional procedures.
• Obtain written representations from management, and evaluate them with the other evidence.
• Evaluate misstatements individually and in aggregate against materiality.
• The report must state the conclusion, the basis, and the limits of the work performed.
• Modify the conclusion for material misstatement or scope limitation, as the facts require.

Common mistakes

• Saying a review gives no assurance. Fix: Write that a review gives limited assurance, which is a lower but real level.
• Writing that the review report gives a true and fair opinion. Fix: Use the negative form: nothing came to attention to believe the statements are not prepared in all material respects under the framework.
• Treating a review as a mini audit and promising reasonable assurance in the engagement letter. Fix: Always write limited assurance for a review. Say clearly it is not an audit.
• Skipping independence and quality control and starting with the engagement letter. Fix: Show acceptance in order: ethics and quality, then preconditions, then terms.
• Stating that SRE 2400 prescribes a fixed percentage such as 5% of profit. Fix: Say that the standard sets no percentage. The percentage and benchmark are professional judgment that you must justify.
• Using materiality only at the evaluation stage. Fix: Para 44 requires use in both designing procedures and evaluating misstatements. Mention both.
• Applying audit-level procedures such as full tests of controls and detailed substantive testing to a review. Fix: State that a review relies mainly on inquiry and analytical procedures. Add more only when you suspect a material misstatement.
• Treating inquiry alone as enough, even when answers are vague. Fix: Say you corroborate unusual or unclear answers with other evidence and extend procedures where needed.
• Treating written representations as sufficient evidence by themselves. Fix: State that representations are corroborative only. You still need inquiry and analytical procedures.
• Applying audit language such as reasonable assurance or opinion. Fix: Use limited assurance and conclusion in negative form.

Exam tips

• Open every answer with the standard name, the engagement type and the assurance level. It earns quick marks.
• In a difference question, use at least four points: assurance, procedures, risk, form of conclusion.
• Quote the objective in negative form. Do not slip into true and fair wording.
• In case scenarios, check the practitioner's role first. It decides between SRE 2400 and SRE 2410.
• Answer MCQs with no negative marking. Always attempt them after the four-point check.
• Write acceptance in the order ethics and quality, preconditions, terms. It gives a clean structure that examiners can follow.
• In case-scenario MCQs, look for a restriction on access or an unclear framework. These are the usual traps for a failed precondition.
• Always use the words limited assurance and not an audit when writing about the engagement letter.