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

Obtaining Understanding and Information Needed for Review (SRE 2400)

Updated 5 October 2026 · Fact-checked

In a review under SRE 2400 (Revised), you first understand the entity, its environment and the financial reporting framework. Then you design mainly inquiry and analytical procedures, plus other procedures where needed, to get enough evidence for limited assurance. You focus on areas where material misstatement is likely, and you extend work if something looks misstated.

Understand Obtaining Understanding and Information Needed for Review

A review engagement gives limited assurance. You do not give the high level of comfort of an audit. You say that nothing has come to your attention that makes you believe the financial statements are materially misstated. To say this safely, you still need real evidence. This topic is about how you get it.

The first step is understanding. You need to know the entity, its environment, its business, and the applicable financial reporting framework (for example Ind AS or AS). You also need to know the entity's accounting policies and how it records transactions. Without this, you cannot tell where the statements could go wrong.

The second step is designing procedures. In a review, the main tools are inquiry and analytical procedures. Inquiry means asking management and others who handle finance. Analytical procedures mean comparing figures and relationships: against prior periods, budgets, industry data, or expected ratios. You add other procedures when these two are not enough. Examples are inspecting a document, observing a process, or recalculating a number.

The third step is focus. You target areas where a material misstatement is likely. You do not test everything. Your procedures must be enough to support a limited assurance conclusion. Under SRE 2400 you do not need to obtain an understanding of internal control in the way an audit requires, and you do not do tests of controls or substantive tests of detail as a routine. But if you become aware that the statements may be materially misstated, you must design extra procedures.

The fourth step is reaction. If an answer to inquiry is vague, or a ratio is unexpected, you do not accept it. You ask more questions, corroborate the answer with other evidence, or perform further procedures. You document what you did and why. A good answer in the exam shows this chain: understand, plan, perform, follow up.

Key rules to remember

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.

How to solve Obtaining Understanding and Information Needed for Review questions

Use this order for any question on information needed for a review. It keeps your answer in provision-facts-conclusion form.

1Identify the engagement as a review under SRE 2400 (Revised) and state that the aim is limited assurance.
2Write what you must understand: the entity, its environment, the applicable financial reporting framework and its accounting policies and practices.
3Pick the areas where a material misstatement is likely from the facts given (unusual balances, new transactions, estimates, related parties).
4Choose procedures: inquiry of management and finance staff, analytical procedures, and other procedures if needed. Match each to the risk area.
5For analytical procedures, state the comparison basis, the expected result, the variation and the threshold for investigation.
6Say what you do with unsatisfactory answers or unexpected results: corroborate, ask more, extend procedures.
7Note documentation of the understanding, procedures and results.
8Close with a conclusion on whether the evidence supports limited assurance or more work is needed.

Quickest way: U-I-A-F: Understand, Inquire, Analyse, Follow up

When to use it: Use when you have limited time on a short case scenario or a 5 to 6 mark written question.

U: Name the entity, framework and what you must understand about it.
I: List the inquiries (management, finance staff, those with oversight) tied to the facts.
A: State the analytical procedures and the comparison basis, then spot the odd figure in the case.
F: Say what follow-up is needed: corroboration or further procedures, and documentation.
Add one line: limited assurance, so no tests of controls or routine detailed testing unless a misstatement is suspected.

Common mistakes in Obtaining Understanding and Information Needed for Review

Applying audit-level procedures such as full tests of controls and detailed substantive testing to a review.
Students carry audit habits into every assurance question.
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.
Students think a management reply is final evidence.
Fix: Say you corroborate unusual or unclear answers with other evidence and extend procedures where needed.
Listing analytical procedures with no expectation or threshold.
Students memorise the name but not the method.
Fix: Always state the comparison basis, the expected figure, and that you investigate significant or unexpected variations.
Skipping understanding of the entity and framework.
Students jump straight to procedures.
Fix: Open your answer with the understanding of the entity, its environment and the applicable framework, as it decides where you focus.
Saying a review gives reasonable assurance or a positive opinion.
Confusion between audit and review wording.
Fix: Use limited assurance and the negative form: nothing has come to attention that causes you to believe the statements are materially misstated.
Ignoring documentation.
Students treat it as a formality.
Fix: Add a line that the understanding, procedures performed, results and conclusions are documented.

Worked examples

Example 1

You are reviewing the half-year financial statements of Kaveri Textiles Ltd under SRE 2400. Revenue is ₹8,00,000 higher than expected on the basis of the same period last year, while trade receivables have risen by 40% and the sales team reports no new customers. Explain what information you would obtain and what procedures you would perform.

Show the solution

Provision: SRE 2400 requires you to understand the entity, its environment and the framework, and to perform mainly inquiry and analytical procedures, adding other procedures where needed, to obtain limited assurance.
Facts: Revenue and receivables have risen sharply without new customers. This is an unexpected relationship and a possible misstatement area (for example early revenue recognition).
Understanding: Obtain the revenue recognition policy under the applicable framework and how sales are invoiced and recorded.
Inquiry: Ask management and the finance team about the reason for the rise, any change in credit terms, large or year-end sales, returns and credit notes after the period end.
Analytical procedures: Compare revenue and receivables with prior period and budget, compute receivable days, and compare gross margin. Investigate the variation.
Other procedures: As the explanation may not be adequate, inspect major invoices and dispatch records near the period end and review post period credit notes.
Follow-up: If explanations are vague or contradicted, extend procedures until you can conclude. Document everything.

Answer: You would understand the entity and revenue policy, inquire of management, run analytical comparisons on revenue, margin and receivable days, and add other procedures such as inspecting invoices and dispatch records because the unexplained rise suggests possible misstatement. You document the work and consider the effect on your conclusion if the matter is not resolved.

Example 2

A junior asks whether, in a review of Meera Pharma Pvt Ltd, inquiry of management is sufficient as the only evidence for inventory. The inventory balance fell from ₹60,00,000 to ₹45,00,000 while sales were flat. Advise.

Show the solution

Provision: In a review, inquiry and analytical procedures are the main procedures, but they must give enough evidence for limited assurance. Other procedures are added when needed.
Compute the movement: ₹60,00,000 − ₹45,00,000 = ₹15,00,000 fall. As a percentage: 15,00,000 ÷ 60,00,000 × 100 = 25%.
Facts: A 25% fall with flat sales is unexpected, so inquiry alone is unlikely to be sufficient.
Inquiry: Ask about stocking policy, write-downs, change in costing method, cut-off and any change in supplier terms.
Analytical: Compare inventory days and gross margin with prior period and expectation.
Other procedures: If the explanation is not supported, inspect stock records or count sheets and check valuation on a sample basis.
Conclusion: Do not rely on inquiry alone for this balance.

Answer: No. The 25% fall in inventory with flat sales is an unexpected relationship. Inquiry should be supported by analytical procedures and, if the explanation is not corroborated, by other procedures such as inspecting stock records and checking valuation. The work is documented.

Exam tips

Always name the standard as SRE 2400 (Revised) and state limited assurance early. It sets the depth of your procedures.
In case scenarios, spot the unusual figure first, then build inquiry, analytics and other procedures around it.
Show a comparison basis and a variation for every analytical procedure. Numbers earn marks.
Contrast with an audit in one line, but do not write a long comparison unless the question asks.
Finish with follow-up and documentation. Many students forget this and lose easy marks.

Practice questions from Review of Financial Information

Obtaining Understanding and Information Needed for Review: frequently asked questions

What are the main procedures in a review under SRE 2400?

The main procedures are inquiry and analytical procedures. You add other procedures when these do not give enough evidence or when you suspect a material misstatement.

Do I need to test internal controls in a review?

Not as a routine. A review does not require tests of controls in the way an audit does. But you still need to understand the entity and its framework to plan your procedures.

What happens if management's answers to inquiries are unsatisfactory?

You do not accept them as final. You corroborate them with other evidence and perform further procedures. If you still cannot get enough evidence, you consider the effect on your conclusion.

How is an analytical procedure done in a review?

You compare current figures with an expectation, such as prior period, budget or industry data. You then investigate significant or unexpected variations through inquiry and, where needed, other procedures.