Assurance and Related Services on Financial Information Other Than Audits - Compilation Engagements and Review Engagements
This is a completed project.
Phil Cowperthwaite, Chair, Former IAASB Member
Jean Blascos, IAASB Member
William (Bill) R. Kinney, Jr, IAASB Member
Ashif Kassam, External Member
Dianne Azoor-Hughes, External Member
Josef Ferlings, External Member
Josephine Jackson, External Member
Michael Gewehr (KPMG, Germany)
Jo Iwasaki (ICAEW, United Kingdom)
Carolyn McNerney (AICPA Auditing Standards Board, United States)
Isabelle Sapet (IESBA Member)
Objective(s) of project
The objectives of this project are:
- To revise ISRS 4410, Engagements to Compile Financial Statments.
- To revise ISRE 2400, Engagements to Review Financial Statements.
- To develop appropriate communications with key stakeholders to promote awareness of different types of services professional accountants may provide in relation to financial information, including assurance services, related services and combinations of services.
- To consider the need for development of other services to meet user needs relating to historical financial statements and other historical financial information, in addition to the existing range of professional services.
In its Strategy and Work Program 2009-2011, the IAASB agreed to revise and redraft ISRE 2400 and ISRS 4410. These standards are in need of revision to better assist practitioners in providing services to small and medium-sized entities, where those entities increasingly are not required to have their financial statements audited.
Task Force progress / Board discussions to date
At its meeting in March 2009 the IAASB considered a project proposal.
The IAASB Consultative Advisory Group (CAG) discussed the project proposal at its March 2009 meeting.
At its June 2009 meeting, the IAASB considered the scope and directional issues to be addressed in this project.
The IAASB agreed to develop the revised standards for review and compilation engagements together, because the services are related, and have a number of issues in common that can best be addressed contemporaneously.
A key challenge is to distinguish the reviews from other assurance services and also from other types of related services, and to distinguish the compilation from assurance services.
At the IAASB's September 2009 meeting , it discussed the significant issues to be addressed for the revision of ISRE 2400, including:
- How a review of financial statements is performed
- The practitioner's objective in a review of financial statements
- The extent of understanding of the entity, and of the entity's industry and its environment the practitioner must have to perform a review
- How engagement risk is viewed and approached in a review engagement
- How the limited assurance nature of the review engagement is described and communicated
- How far the practitioner needs to go to resolve inconsistencies that the practitioner observes between the financial statements and the practitioner's understanding of the entity, its industry and its environment
- The wording of the practitioner's conclusion
- Reviews of financial statements performed by the auditor of an entity
- Premises upon which a review is performed, and application of the Assurance Framework concepts relating to engagement acceptance
- Quality control in a review engagement
- Maintaining Independence in a review engagement - provision of certain non-assurance services.
- The practitioner's objective in a compilation engagement.
- How to clearly distinguish the compilation from assurance engagements.
- Addressing circumstances when a practitioner is associated by third parties with financial information.
- The extent of understanding of the entity, and the entity's industry and its environment the practitioner must have to compile financial information.
- How practitioners meet the ethical obligation to avoid being associated with materially false or misleading information in a compilation engagement.
- The content and wording of the practitioner's report
- The premises upon which a compilation is performed and pre-conditions for accepting compilation engagements
- Reporting requirements concerning practitioner independence.
In March 2010, IAASB Staff issued a Staff Project Update, Assurance and Related Services on Financial Statements Other Than Audits. This Staff Project Update reports on the progress that has been made with this project in the context of development of standards for assurance and related services other than audits.
At its March 2010 meeting, the IAASB CAG discussed the approach to performing compilations and reviews respectively and also discussed aspects of the draft requirements developed by the Task Force for each standard.
At its March 2010 meeting, the IAASB discussed draft requirements developed by the Task Force for the revised standards.
At its June 2010 meeting, the IAASB considered the first read of the revised ISRS 4410, and of the revised ISRE 2400.
At its September 2010 meeting, the IAASB CAG discussed the proposed revised ISRS 4410, and a number of significant issues in relation to the second read of ISRE 2400.
At its September 2010 meeting, the IAASB considered the second read of ISRS 4410 and discussed the following key issues:
- The application of International Standard on Quality Control (ISQC) No. 1 to compilation engagements
- Making it sufficiently clear that the practitioner performing these engagement assists management in preparing and presenting the financial statements, which remain management's responsibility
- The practitioner's evaluation of the acceptability of the financial reporting framework as applied by the entity, in various situations including special purpose reporting contexts
- The practitioner's response when the compiled financial information needs to be amended so that it will not be materially false or misleading
- The purpose of the practitioner's compilation report.
- Provisional effective date of the proposed revised standard.
The IAASB approved the proposed ISRS 4410 (Revised) as an Exposure Draft with a comment deadline of March 31, 2011.
At its September 2010 Meeting the IAASB also considered the following key issues regarding the draft revised ISRE 2400:
- The practitioner's objectives in a review engagement and application of the concept of 'sufficient appropriate evidences' in a review, in view of the required form of expression of the practitioner's conclusion for a review; and
- The 'mechanics' of performing a review, including performance of further procedures, and situations that would warrant further procedures
In October 2010, IAASB Staff issued a brochure Meeting Diverse Needs, to communicate the broad range of assurance and related services that is supported by International Standards.
At its December 2010 meeting, the IAASB considered the second read of proposed ISRE 2400 (Revised) and discussed the following key issues:
- How the work effort in a review is described in the practitioner's objectives
- The practitioner's understanding of the entity and its environment, and of the applicable financial reporting framework, and how that understanding informs design of procedures undertaken in a review, including identifying areas where the financial statements are likely to be materially misstated
- Conditions that require the practitioner to undertake additional procedures in a review; and the nature and extent of those procedures
- Provisional effective date of the proposed revised standard.
The IAASB approved the proposed ISRE 2400 (Revised) as an Exposure Draft with a comment deadline of May 20, 2011.
Project Activities Subsequent to Issuance of Exposure Drafts:
At its June 2011 meeting, the IAASB considered an initial tranche of significant issues raised by respondents for the Exposure Draft (ED) of proposed ISRS 4410 (Revised). The IAASB considered and provided views on the following significant issues:
- The scope of proposed ISRS 4410
- Distinguishing the compilation engagement from assurance engagements, including regarding the required work effort and the reporting for the engagement. The need for clear understanding of the distinction by management and those charged with governance (and the engaging parties where different), and to the users of financial information.
- The practitioner’s responsibilities in respect of the applicable financial reporting framework, including when accepting an engagement and when compiling financial information
- Application of ISQC 1 to compilation engagements, and the premise that firms undertaking compilation engagements are subject to ISQC 1 or requirements that are at least as demanding
- Relevant ethical requirements: reporting requirements surrounding the practitioner’s independence or lack of independence.
The IAASB CAG discussed a number of the significant issues identified by respondents for the ED of proposed ISRS, at its September 2011 meeting.
At its September 2011 meeting, the IAASB undertook a full review of respondents’ comments on the ED, and provided views on proposed amendments to the draft ISRS 4410 responding to the significant issues raised by respondents for the ED. The remaining significant issues discussed were:
- The scope of ISRS 4410; including different contexts where mandatory application of ISRS 4410 is in the public interest (i.e. ought to be required), or is otherwise beneficial.
- The practitioner’s report, including the illustrative reports provided in the appendix material for ISRS 4410.
- Use of terminology: “compile” and “assists management in preparing and presenting financial information.”
- The practitioner’s response on becoming aware that amendments to the compiled financial information are needed, and relevant ethical requirements.
The IAASB approved ISRS 4410 (Revised), Compilation Engagements, at its December 2011 meeting. The ISRS is effective for compilation engagement reports issued on or after July 1, 2013. A Basis for Conclusions provides background to the project, main comments received on the exposure draft, and the IAASB’s conclusions regarding these comments in developing the final standard.
At its December 2011 meeting, the IAASB considered an initial tranche of significant issues raised by respondents for the Exposure Draft (ED) of proposed ISRE 2400 (Revised). The IAASB considered and provided views on the following significant issues:
- The concept of limited assurance in a review of Financial Statements: the practitioner’s objectives, conclusion, and evidence supporting expression of the conclusion
- The practitioner’s competency in assurance skills and techniques
- Performing additional procedures in a review engagement
- Aligning the draft ISRE with other IAASB pronouncement, and common principles for limited assurance engagements
- Clarification of the interrelationship between draft ISRE 2400 (Revised) and ISRE 2410
- The need for implementation support for ISRE 2400 (Revised) when finalized.
The IAASB CAG discussed a number of the significant issues identified by respondents for the ED of proposed ISRE, at its March 2012 meeting.
At its March 2012 meeting, the IAASB undertook a full review of respondents’ comments on the ED, and provided views on proposed amendments to the draft ISRE 2400 responding to the significant issues raised by respondents for the ED. The remaining significant issues discussed were:
- Use of the term “limited assurance in the draft ISRE
- The evidence-based nature of a review engagement
- Approach to designing the work effort for a review
- Performing a review: designing and performing the procedures
The IAASB approved ISRE 2400 (Revised) Engagements to Review Historical Financial Statements, at its June 2012 meeting. The ISRE is effective for reviews of financial statements for periods ending on or after December 31, 2013. A Basis for Conclusions provides background to the project, main comments received on the exposure draft, and the IAASB’s conclusions regarding these comments in developing the final standard.
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