ABC & Company, Chartered Accountants has carried out a review of the financial statements of XYZ Limited, a listed company, for the half year ended June 30, 2017. The job in charge has drafted the following review report:
Report on Review of Interim Financial Information
Introduction
We have reviewed the accompanying condensed interim statement of financial position of XYZ Limited (“the company”) as at June 30, 2017 and 2016, and the related condensed interim statement of comprehensive income and condensed interim statement of cash flows together with the notes forming part thereof for the half year then ended in accordance with International Standards on Auditing applicable to review engagement. Management is responsible for the preparation and presentation of this condensed interim financial information in accordance with approved accounting standards as applicable.
Scope of Review
A review of interim condensed 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.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim financial information as at June 30, 2017 is not presented fairly in all respects. Because of the inherent limitations of our review engagement, this report is intended for the information of management and should not be used for any other purposes.
Emphasis of matter
Without qualifying our conclusion, we draw attention to note X to the financial statements. Management has informed us that inventory has been stated at cost which is in excess of its net realizable value. Management’s computation, which we have reviewed, shows that inventory, if valued at the lower of cost and net realizable value as required by International Financial Reporting Standards, would have been lower by Rs.20,000,000/-, and the reported net income and shareholders’ equity would have decreased by Rs.18,900,000/-.
Sigma & Company
Chartered Accountants
Required:
Highlight the deficiencies, if any, in the draft review report
Deficiencies in the Review Report
- The Report has not been addressed properly.
- Reference to the prior year’s audited financial statements in the first paragraph, is not required.
- A component of the financial statements i.e. Statement of Changes in Equity have not been identified in the first paragraph.
- Reference to the ISAs, in the first paragraph, is not required.
- The auditor’s review responsibilities should follow management’s responsibilities in the first paragraph.
- There should be a statement in the second (scope) paragraph that the review was conducted in accordance with ISRE 2410.
- There should be a statement in the second (scope) paragraph that being a review engagement no audit opinion is being expressed on the financial statements.
- The words “in accordance with approved Accounting Standard as applicable” are missing from the conclusion paragraph.
- There should be a reference to “material” respect in the Conclusion paragraph.
- There should be no restriction on the distribution of the auditors review report as mentioned in the fourth paragraph.
- Over valuation of inventory should be reported as a qualification instead of emphasis of matter paragraph.
- Address of the Chartered Accountant needs to be given.
- The report should be dated.
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