CHAPTER NINTEENINTERNATIONAL STANDARDS ON REVIEW ENGAGEMENTS PART A – INTRODUCTION TO AUDIT AND RELATED SERVIC S LO 1 AUDIT AND AUDIT RELATED SERVICES 16.1.1 16.1.4 PART B – ENGAGEME
Trang 1CHAPTER NINTEEN
INTERNATIONAL STANDARDS ON
REVIEW ENGAGEMENTS
PART A – INTRODUCTION TO AUDIT AND RELATED SERVIC S
LO 1 AUDIT AND AUDIT RELATED SERVICES 16.1.1 16.1.4
PART B – ENGAGEMENT TO REVIEW FINANCI AL INFORMATION
LO 4 PRINCIPLES TO APPLY TO REVI EW ENGAGEMENTS 16.1.4 16.1.6
LO 5 PROCEDURES FOR A REVIEW ENGAGEMENT 16.1.4 16.1.7
Trang 2PART A – INTRODUCTION TO AUDIT AND RELATED SERVICES
LO 1: AUDIT AND AUDIT RELATED S ERVIC S:
Audit:
Audit is a form of assurance engagement Objective of an audit is to obtain reasonable assurance whether financial statements have been prepared, in all material respects, in accordance with applicable financial reporting framework
Review:
Review is also a form of assurance engagement Objective of a review is to obtain moderate assurance whether anything has come to auditor’s attention that causes him to believe that interim financial information is not prepared, in all material respects, in accordance with applicable financial reporting framework
Agreed-upon Procedures:
The objective is to carry out procedures of audit nature to which the auditor and the entity have agreed and to report on factual findings
Compilations:
The objective is to carry out procedures of accounting nature to collect, classify and summarize
financial information e.g preparing a tax computation for client
LO 2: TYPES OF REVIEW ENGAGEMENT:
There are two types of review engagements:
Attestation Engagement:
In this type of engagement, a practitioner is engaged to attest to something e.g to attest that certain procedures within the entity have been performed in prescribed way Practitioner will not comment on quality of procedures.)
Direct reporting engagement:
In this type of engagement, a practitioner is engaged to provide a special report on some aspect of client’s affairs Practitioner performs examination of financial information and expresses negative form of conclusion (moderate assurance) A common example is “Due Diligence Engagement”
LO 3: DUE DILIGENC ENGAGEMENTS:
Due Diligence Engagement:
This is a type of direct reporting review engagement and is usually performed in the context of Mergers and Takeovers Objective is to obtain information about the Target company prior to take over to find out everything that may be relevant about target company’s financial performance, financial position and future prospects
Main objective of a Due Diligence is:
To decide whether a takeover or merger is actually desirable
If so, what should be proposed cost of acquisition
Trang 3Items to investigate in a Due Diligence Exercise:
1 Financial Performance and Financial Position (e.g looking at financial statements of company, budgets etc., performing ratio analysis and evaluating trends)
2 Operational Issues (e.g major contracts with customers, high rate of labor turnover, high cost of warranties to customers)
3 Management Representations (evaluating management’s representation regarding takeover e.g if management says that there is no tax investigation or significant litigations)
4 Identification of assets (specially intangible assets are identified for inclusion in financial statements of acquirer e.g internally generated goodwill, patent rights, customer lists, brand names)
5 Future Benefits and costs of takeover (it includes analysis of future benefits e.g synergy effect from economies of scale)
Benefits of using an audit firm for due diligence:
An audit firm has expertise
Saves time for management
Re-assures that acquisition has been properly and professionally evaluated
PART B – ENGAGEMENT TO REVIEW FINANCIAL INFORMATION
LO 4: PRINCIPLES TO APPLY TO RE VIEW ENGAGEMENTS:
A professional engaged in a review engagement shall:
Comply with ethical requirements
Agree terms of engagement
Plan and perform the work with professional skepticism
Obtain sufficient and appropriate evidence by performing “Review Procedures”
Express his conclusion in negative form in a written report
LO 5: PROCEDURES FOR A REVIEW ENGAGEMENT:
The auditor should make inquiries, primarily of persons responsible for financial and accounting matters, and perform analytical and other review procedures to enable the auditor to conclude on financial statements A review ordinarily does not require tests of the accounting records through inspection, observation or confirmation
Practitioner shall:
1 Obtain understanding of entity and its industry
2 Make inquiries of management about significant matters e.g about identification of subsequent events affecting financial information, about events or conditions affecting ability of entity to continue as a Going concern
3 Applying analytical procedures i.e
a Comparing financial information with Prior Period, Budgets competitors and industry
b Study of Relationships between elements in financial statements that should be expected to confirm a predictable pattern
4 Reading the minutes of the meetings of shareholders, and TCWG
5 Other review procedures including:
a evaluating uncorrected misstatements (as in audit)
Trang 4b obtain written representation letter from management
c consider matters giving rise to modification in audit/review report in previous periods
d read other information to identify a material inconsistency
LO 6: REPORT OF A REVIEW ENGAGEMENT:
Examples of Review Reports on Interim Financial Information (Unqualified Conclusion)
AUDITORS’ REPORT TO THE MEMBERS ON REVIEW OF CONDENSED INTERIM FINANCIAL INFORMATION
Introduction
We have reviewed the accompanying condensed interim statement of financial position of Pakistan Telecommunication Company Limited as at June 30, 2014, and the related condensed interim statement of comprehensive income, condensed interim statement of cash flows, condensed interim statement of changes in equity and notes to the financial information for the six months period then ended (here-in-after referred to as the “interim financial information”) Management is responsible for the preparation and presentation of this interim financial information in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting Our responsibility is to express a conclusion
on this interim financial information based on our review
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit Accordingly, we do not express an audit opinion
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information as of and for the six months period ended June 30, 2014, is not prepared, in all material respects in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting
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