Advanced Auditing, Assurance and Professional Ethics · Review of Financial Information

Acceptance, Terms and Preconditions of Review (SRE 2400)

Updated 5 October 2026 · Fact-checked

Under SRE 2400 (Revised), you accept a review of historical financial statements only if ethical and quality requirements are met, the preconditions exist, and the terms are agreed in writing. Check independence, competence, an acceptable framework, management's responsibilities and access. Then issue an engagement letter.

Understand Acceptance, Terms and Preconditions of Review

A review engagement gives limited assurance on historical financial statements. The practitioner concludes whether anything has come to attention that makes the statements materially misstated. It is not an audit, so the work is lighter. That is why the front end matters: if the base is weak, a limited assurance report can mislead users.

Before you accept, you must be satisfied about three things. First, you comply with the relevant ethical requirements, including independence where required for the engagement, and the Code of Ethics. Second, the firm applies quality management under SQM 1 (Quality Management for Firms), which replaced SQC 1, and SQM 2 (Engagement Quality Reviews) where an engagement quality review is required. The engagement partner takes responsibility for the overall quality of the review. Third, you can perform the engagement with professional skepticism and professional judgment.

Professional skepticism means a questioning mind. You stay alert to information that contradicts other information and to doubts about documents and responses. You do not assume management is dishonest, and you do not assume it is honest. Professional judgment means applying training, knowledge and experience to decisions, such as whether to accept and how much work is needed.

Next come the preconditions. Broadly, you must determine that the financial reporting framework is acceptable and that management acknowledges and understands its responsibilities. These include preparing the statements under the framework, internal control needed for preparation, and giving you access to all relevant information, additional information you request, and unrestricted access to people within the entity. If a precondition is missing, you should discuss it with management. If it cannot be resolved, you must not accept the engagement unless required by law or regulation to accept. If you are so required, your report must not refer to the engagement as a review conducted under SRE 2400 (Revised). You then consider the consequences and the form of any report or disclaimer that suits the circumstances. A disclaimer is not automatic.

Finally, you agree the terms with management or those charged with governance and record them in an engagement letter (or other suitable written form). This avoids misunderstanding about the objective, scope, responsibilities and the form of the report. Remember that the review gives limited assurance only, and that it will not necessarily reveal all matters an audit would.

Key rules to remember

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.

How to solve Acceptance, Terms and Preconditions of Review questions

Use this order for any case on acceptance or terms of a review. Each step maps to a heading you can write in your answer.

1Identify the engagement: confirm it is a review of historical financial statements giving limited assurance, not an audit or a compilation.
2Test ethical requirements: check independence and any threats, and the Code of Ethics. Note any safeguards or the need to decline.
3Test quality control: check the firm's quality system, competence, time and resources, and the engagement partner's responsibility.
4Test the preconditions: framework acceptable, management accepts its responsibilities, and access to information and people is unrestricted.
5Decide: if a precondition is missing, discuss with management. If it cannot be resolved, do not accept unless required by law or regulation to accept.
6Agree the terms in writing: list the engagement letter contents and who signs or acknowledges.
7Conclude in provision-facts-conclusion form: state the rule, apply the facts of the case, then give a clear accept or decline decision.

Quickest way: E-P-T checklist: Ethics, Preconditions, Terms

When to use it: Use it for short MCQs and for 5 to 8 mark written questions where you have to decide whether to accept a review.

E: ask if you are independent and competent and whether quality control is in place.
P: ask if the framework is acceptable, management accepts its responsibilities, and access is unrestricted.
T: ask if the terms are written in an engagement letter with objective, scope, responsibilities and report form.
Decision: any E or P failure means do not accept until resolved. Missing T means get it agreed before starting.

Common mistakes in Acceptance, Terms and Preconditions of Review

Treating a review as a mini audit and promising reasonable assurance in the engagement letter.
Students learn audit first and carry its language over.
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.
The letter feels like the main document.
Fix: Show acceptance in order: ethics and quality, then preconditions, then terms.
Listing only the framework as a precondition.
Students forget the management responsibility part.
Fix: Include management's acknowledgement of preparation, internal control and access to information and people.
Accepting the engagement while a precondition, such as unrestricted access, is not met.
Students treat a restriction imposed by management as something to accept now and handle later by modifying the report. A failed precondition is not dealt with that way.
Fix: Resolve the restriction before acceptance. Discuss it with management first. If it cannot be resolved, the practitioner must not accept the engagement unless required by law or regulation to accept. If so required, the report must not refer to the engagement as a review conducted under SRE 2400 (Revised), and the practitioner considers the consequences and the form of any report or disclaimer in the circumstances.
Confusing professional skepticism with distrust of management.
The word skepticism sounds negative.
Fix: Define it as a questioning mind and alertness to contradictory information, with no presumption of either honesty or dishonesty.
Writing generic answers without applying the case facts.
Students memorise rules but do not link them to the scenario.
Fix: Quote one or two facts from the case in each step and tie them to the rule.

Worked examples

Example 1

M/s Rao & Co., a firm of Chartered Accountants, is asked by Zenith Foods Ltd. to review its half-yearly financial statements. The CFO says the firm may look at the ledgers but cannot speak to the production head or the warehouse staff, as they are busy. The CFO agrees to sign the management responsibilities in the engagement letter otherwise. No law or regulation requires Rao & Co. to accept. Advise whether Rao & Co. should accept.

Show the solution

Rule: management must acknowledge its responsibility to give the practitioner unrestricted access to people within the entity, as a precondition of a review under SRE 2400 (Revised).
Facts: the CFO denies access to the production head and warehouse staff. These people are relevant for inventory and operations, which are likely material areas.
Application: the restriction means the precondition of unrestricted access to people is not met. Signing other parts of the letter does not cure this.
Action: discuss the matter with management and ask for the restriction to be removed.
Conclusion: if management does not remove the restriction, Rao & Co. must not accept the engagement, as no law or regulation requires it to accept.

Answer: Rao & Co. should not accept unless the CFO removes the restriction on access to people. Without unrestricted access, a precondition for the review is absent, and no law or regulation requires acceptance.

Example 2

Sharma & Associates is approached to review the annual financial statements of Kiran Traders, which are prepared under a framework the proprietor describes as "my own simple method". Mr Sharma's firm has no independence issue and has capacity. Before accepting, what must the firm confirm, and what should the engagement letter cover?

Show the solution

Ethics and quality: no independence issue and capacity exist, so the firm can say these requirements appear met, subject to the firm's quality control procedures.
Precondition on framework: the practitioner must determine that the financial reporting framework is acceptable. A self-described method with no recognised criteria is unlikely to give suitable criteria for users.
Action: discuss with the proprietor whether the statements can be prepared under an acceptable framework. If not, the precondition is not met and the firm should not accept.
If the framework is changed to an acceptable one and management acknowledges its responsibilities, proceed to terms.
Engagement letter contents: objective and scope of the review, limited assurance and that it is not an audit, the practitioner's responsibilities, management's responsibilities for preparation, internal control and access, the identified framework, and the expected form of the review report.

Answer: The firm must confirm that the framework is acceptable and that the proprietor accepts management's responsibilities. On the facts, the framework is not acceptable, so the firm should not accept until this is resolved. Then it should issue an engagement letter covering the contents listed.

Exam tips

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.
End every written answer with a clear decision, accept or do not accept, with the reason in one line.
If the question asks for engagement letter contents, give a short bullet list instead of a long paragraph to save time.

Practice questions from Review of Financial Information

Acceptance, Terms and Preconditions of Review: frequently asked questions

What are the preconditions for a review engagement under SRE 2400?

The financial reporting framework must be acceptable, and management must acknowledge its responsibilities. These cover preparing the statements, relevant internal control and giving you access to information and people. If these are absent and cannot be fixed, you must not accept unless required by law or regulation to accept.

Is an engagement letter mandatory for a review?

The practitioner must agree the terms of the engagement with management or those charged with governance. These terms are recorded in an engagement letter or other suitable written form. Writing them avoids misunderstanding about scope and responsibilities.

How is professional skepticism different from professional judgment?

Professional skepticism is an attitude of a questioning mind and alertness to contradictory information. Professional judgment is applying relevant training, knowledge and experience to make informed decisions. You need both in a review.

What should I do if management restricts access to information?

First discuss it with management and try to get the restriction removed. If it stays, the precondition is not met and you must not accept the engagement unless required by law or regulation to accept. If you are so required, the report must not refer to the engagement as a review conducted under SRE 2400 (Revised), and you consider the consequences and the form of any report or disclaimer in the circumstances.