ISCA Comments on IAASB’s Exposure Draft: Proposed ISRE 2410 (Revised)

ISCA has submitted its response to IAASB’s Exposure Draft on Proposed International Standard on Review Engagement (ISRE) 2410 (Revised) Review of Interim Financial Information Performed by the Independent Auditor of the Entity’s Annual Financial Statements.

This standard applies only when an entity’s existing financial statement auditor is engaged to review the entity’s interim financial information, for example, half-year or other financial information prepared before the annual financial statements. In Singapore, there is no general requirement for interim financial information to be reviewed by the auditor. Such reviews are generally undertaken only in limited circumstances where additional comfort is sought over interim results.

Background

ISRE 2410 (Revised) deals with:

1. The responsibilities of the auditor of an entity’s annual financial statements when engaged to perform a review of the entity’s interim financial information; and
2. The form and content of the auditor’s review report on the interim financial information.
   

The proposed revisions to ISRE 2410 reflect changes in the global environment and improvements to the audit and assurance model made over the last two decades.

Key proposals include:

• a clearer articulation of what an interim review engagement is and how it differs from a financial statement audit;
  
• enhanced requirements in areas of high public interest, such as going concern, fraud, and non-compliance with laws and regulations (NOCLAR); and 
• improved transparency in the auditor’s interim review report.
  

Response to IAASB

While we are supportive of the direction of ED-2410, we disagree with several suggestions in the ED as they might inadvertently widen the expectation gap of users.

Below are some of the key comments:

• Going concern reporting is the most significant area of concern. We do not support the requirement for explicit going concern statement in every review report. Such a requirement could widen the expectation gap, as users may infer that extensive going concern procedures have been performed. However, we support specific reporting where warranted, such as where a material uncertainty or significant going concern matter exists. If the going concern reporting requirement is retained, IAASB should clarify the nature and extent of procedures needed to support any going concern statement, including how auditors should consider management forecasts and assumptions within a limited assurance engagement, and how do these differ from expectations under an audit.
  
• Expectation gap remains a key concern. While ED-2410 explains the distinction between an audit and an interim review, there is a risk that users may still misunderstand the level of assurance provided by an interim review. We recommend that IAASB consider complementary explanatory or educational materials for users, in addition to adding further requirements to the standard.
  

• Boundary between review procedures and audit procedures needs clearer articulation. The response notes that while inquiries and analytical procedures remain the primary procedures in an interim review, additional procedures may be needed for the new areas introduced in this ED such as fraud and going concern. More guidance is needed on when such additional procedures are expected and how far they should extend without causing the engagement to resemble an audit.
  

• First-time interim review engagements may present practical challenges. Where the auditor has not yet completed the full understanding required for the full-year audit, the standard should clarify whether the interim review can be completed based on the understanding necessary for a review. Similar clarification is needed on whether opening balance-related procedures must be completed before concluding on the interim review.
  

Read the full response to IAASB here.