ISRE 2400 Detailed Review Procedures List
Detailed Procedures that may be Performed in an Engagement
to Review Financial Statements
1. The inquiry and analytical review procedures carried out
in a review of financial statements are
determined by the practitioner’s
judgment. The procedures listed below are for illustrative
purposes only. It is not intended
that all the procedures suggested apply to every review engagement. This Appendix is not intended to serve as a
program or checklist in the conduct of a review.
General
2. Discuss terms and scope of the engagement with the client and the
engagement team.
3. Prepare an engagement letter setting forth the terms and scope of the
engagement.
4. Obtain an understanding of the entity’s business activities and the
system for recording financial
information and preparing financial
statements.
5. Inquire whether all financial information is
recorded:
(a) Completely;
(b) Promptly; and
(c) After the necessary authorization.
6. Obtain the trial balance and determine whether it
agrees with the general ledger and the
financial statements.
7. Consider the results of previous audits and review engagements,
including accounting
adjustments required.
8. Inquire whether there have been any significant
changes in the entity from the previous year
(e.g., changes in ownership or
changes in capital structure).
9. Inquire about the accounting policies and consider
whether:
(a)
They comply with local or
international standards;
(b)
They have been applied appropriately;
and
(c)
They have been applied consistently
and, if not, consider whether disclosure has been made of any changes in the accounting policies.
10. Read the minutes of meetings of shareholders, the board of directors and
other appropriate
committees in order to identify
matters that could be important to the review.
11. Inquire if actions taken at shareholder, board of
directors or comparable meetings that affect
the financial statements have been
appropriately reflected therein.
12.
Inquire about the existence of
transactions with related parties, how such transactions have been accounted for and whether related parties have been
properly disclosed.
13.
Inquire about contingencies and
commitments.
14.
Inquire about plans to dispose of
major assets or business segments.
15.
Obtain the financial statements and
discuss them with management.
16.
Consider the adequacy of disclosure
in the financial statements and their suitability as to classification and presentation.
17.
Compare the results shown in the
current period financial statements with those shown in financial statements for comparable prior periods and, if
available, with budgets and forecasts.
18.
Obtain explanations from management for
any unusual fluctuations or inconsistencies in the financial statements.
19.
Consider the effect of any
unadjusted errors – individually and in aggregate. Bring the errors to the attention of management and determine how the
unadjusted errors will influence the report
on the review.
20.
Consider obtaining a representation
letter from management. Cash
21.
Obtain the bank reconciliations.
Inquire about any old or unusual reconciling items with client personnel.
22.
Inquire about transfers between cash
accounts for the period before and after the review date.
23.
Inquire whether there are any
restrictions on cash accounts. Receivables
24.
Inquire about the accounting
policies for initially recording trade receivables and determine whether any allowances are given on such transactions.
25.
Obtain a schedule of receivables and
determine whether the total agrees with the trial balance.
26.
Obtain and consider explanations of
significant variations in account balances from previous periods or from those anticipated.
27.
Obtain an aged analysis of the trade
receivables. Inquire about the reason for unusually large accounts, credit balances on accounts or any other unusual
balances and inquire about the collectibility
of receivables.
28. Discuss
with management the classification of receivables, including noncurrent
balances, net
credit balances and amounts due from
shareholders, directors and other related parties in the financial statements.
29. Inquire about the method for identifying “slow
payment” accounts and setting allowances for
doubtful accounts and consider it for
reasonableness.
30. Inquire whether receivables have been pledged,
factored or discounted.
31. Inquire about procedures applied to ensure that a
proper cutoff of sales transactions and sales
returns has been achieved.
32. Inquire whether accounts represent goods shipped
on consignment and, if so, whether
adjustments
have been made to reverse these transactions and include the goods in
inventory.
33. Inquire whether any large credits relating to
revenue recorded have been issued after the
balance sheet date and whether
provision has been made for such amounts.
Inventories
34. Obtain
the inventory list and determine whether:
(a)
The total agrees with the balance in
the trial balance; and
(b)
The list is based on a physical count
of inventory.
35. Inquire about the method for counting inventory.
36. Where a physical count was not carried out on the balance sheet date,
inquire whether:
(a)
A perpetual inventory system is used
and whether periodic comparisons are made with actual quantities on hand; and
(b)
An integrated cost system is used and
whether it has produced reliable information in the past.
37. Discuss
adjustments made resulting from the last physical inventory count.
38. Inquire about procedures applied to control cutoff
and any inventory movements.
39. Inquire about the basis used in valuing each
category of the inventory and, in particular,
regarding the elimination of
inter-branch profits. Inquire whether inventory is valued at the lower of cost and net realizable value.
40. Consider the consistency with which inventory
valuation methods have been applied, including
factors such as material, labor and
overhead.
41.
Compare amounts of major inventory
categories with those of prior periods and with those anticipated for the current period. Inquire about major
fluctuations and differences.
42.
Compare inventory turnover with that
in previous periods.
43.
Inquire about the method used for
identifying slow moving and obsolete inventory and whether such inventory has been accounted for at net realizable
value.
44.
Inquire whether any of the inventory
has been consigned to the entity and, if so, whether adjustments have been made to exclude such goods from
inventory.
45.
Inquire whether any inventory is
pledged, stored at other locations or on consignment to others and consider whether such transactions have been accounted
for appropriately.
Investments (Including Associated
Companies and Marketable Securities)
46.
Obtain a schedule of the investments
at the balance sheet date and determine whether it agrees with the trial balance.
47.
Inquire about the accounting policy
applied to investments.
48.
Inquire from management about the
carrying values of investments. Consider whether there are any realization problems.
49.
Consider whether there has been
proper accounting for gains and losses and investment income.
50.
Inquire about the classification of
long-term and short-term investments. Property
and Depreciation
51.
Obtain a schedule of the property
indicating the cost and accumulated depreciation and determine whether it agrees with the trial balance.
52.
Inquire about the accounting policy
applied regarding the provision for depreciation and distinguishing between capital and maintenance items. Consider
whether the property has suffered a material, permanent
impairment in value.
53.
Discuss with management the
additions and deletions to property accounts and accounting for gains and losses on sales or retirements. Inquire whether
all such transactions have been accounted
for.
54.
Inquire about the consistency with
which the depreciation method and rates have been applied and compare depreciation provisions with prior years.
55.
Inquire
whether there are any liens on the property.
56.
Discuss whether lease agreements have
been properly reflected in the financial statements in conformity with current accounting pronouncements.
Prepaid Expenses, Intangibles and
Other Assets
57.
Obtain schedules identifying the
nature of these accounts and discuss with management the recoverability thereof.
58.
Inquire about the basis for recording
these accounts and the amortization methods used.
59.
Compare balances of related expense
accounts with those of prior periods and discuss significant variations with management.
60.
Discuss the classification between
long-term and short-term accounts with management. Loans Payable
61.
Obtain from management a schedule of
loans payable and determine whether the total agrees with the trial balance.
62.
Inquire whether there are any loans
where management has not complied with the provisions of the loan agreement and, if so, inquire as to management’s
actions and whether appropriate adjustments
have been made in the financial statements.
63.
Consider the reasonableness of
interest expense in relation to loan balances.
64.
Inquire whether loans payable are
secured.
65.
Inquire whether loans payable have
been classified between noncurrent and current. Trade Payables
66.
Inquire about the accounting
policies for initially recording trade payables and whether the entity is entitled to any allowances given on such
transactions.
67.
Obtain and consider explanations of
significant variations in account balances from previous periods or from those anticipated.
68.
Obtain a schedule of trade payables
and determine whether the total agrees with the trial balance.
69.
Inquire whether balances are
reconciled with the creditors’ statements and compare with prior period balances. Compare turnover with prior periods.
70.
Consider whether there could be
material unrecorded liabilities.
71.
Inquire whether payables to
shareholders, directors and other related parties are separately disclosed.
Accrued and Contingent Liabilities
72.
Obtain
a schedule of the accrued liabilities and determine whether the total agrees
with the trial balance.
73.
Compare
major balances of related expense accounts with similar accounts for prior
periods.
74.
Inquire
about approvals for such accruals, terms of payment, compliance with terms,
collateral and
classification.
75.
Inquire
about the method for determining accrued liabilities.
76.
Inquire
as to the nature of amounts included in contingent liabilities and commitments.
77.
Inquire
whether any actual or contingent liabilities exist which have not been recorded
in the accounts. If so, discuss with
management whether provisions need to be made in the accounts or whether disclosure should be made
in the notes to the financial statements.
Income
and Other Taxes
78.
Inquire
from management if there were any events, including disputes with taxation
authorities, which could
have a significant effect on the taxes payable by the entity.
79.
Consider
the tax expense in relation to the entity’s income for the period.
80.
Inquire
from management as to the adequacy of the recorded deferred and current tax
liabilities including
provisions in respect of prior periods.
Subsequent Events
81.
Obtain
from management the latest interim financial statements and compare them with
the financial statements being reviewed
or with those for comparable periods from the preceding year.
82.
Inquire
about events after the balance sheet date that would have a material effect on
the financial statements under review
and, in particular, inquire whether:
(a)
Any
substantial commitments or uncertainties have arisen subsequent to the balance sheet date;
(b)
Any
significant changes in the share capital, long-term debt or working capital
have occurred up to the date of inquiry;
and
(c)
Any
unusual adjustments have been made during the period between the balance sheet date and the date of inquiry.
Consider the need for adjustments or
disclosure in the financial statements.
83.
Obtain and read the minutes of
meetings of shareholders, directors and appropriate committees subsequent to the balance sheet date.
Litigation
84.
Inquire from management whether the
entity is the subject of any legal actions-threatened, pending or in process. Consider the effect thereof on the
financial statements.
Equity
85.
Obtain and consider a schedule of
the transactions in the equity accounts, including new issues, retirements and dividends.
86.
Inquire whether there are any
restrictions on retained earnings or other equity accounts. Operations
87.
Compare results with those of prior
periods and those expected for the current period. Discuss significant variations with management.
88.
Discuss whether the recognition of
major sales and expenses have taken place in the appropriate periods.
89.
Consider extraordinary and unusual
items.
90.
Consider and discuss with management
the relationship between related items in the revenue account and assess the reasonableness thereof in the
context of similar relationships for prior periods
and other information available to the practitioner.
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