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Professional accountants in practice are frequently looked upon as trusted business advisors. This relationship stems from their significant breadth of business experience combined with detailed knowledge of their clients’ businesses, much of which is obtained in the process of performing assurance engagements on their clients’ financial statements. Professional accountants are therefore in a unique position to add value, both in terms of enhancing the credibility of their clients’ financial statements and being able to provide them with tailored business advice.

The International Auditing and Assurance Standards Board (IAASB) has issued International Standard on Review Engagements (ISRE) 2400 (Revised), Engagements to Review Historical Financial Statements, which is now effective for periods ended on or after December 31, 2013. Review engagements provide a limited form of assurance on historical financial statements and may be a cost effective and value-adding alternative when an audit is not required.

Adding Cost-Effective Value to Clients

A review, consisting primarily of inquiry and analysis, is based on the professional accountant’s understanding of the entity and its environment and the applicable financial reporting framework according to which the financial statements are prepared. This understanding includes relevant industry, regulatory, and other external factors; the entity’s operations, ownership, and governance structure; how it is financed; and its accounting systems and records. The professional accountant uses this knowledge to design and perform inquiry and analytical procedures on both material items in the financial statements and on those items where material misstatements are likely to arise. In the course of the engagement, the practitioner develops a significant understanding of the client and its business, which gives him/her an excellent opportunity to offer additional value to the client through the provision of bespoke advice.

Practitioners can provide review services most efficiently by staffing a review engagement with professionals competent in assurance skills and techniques, consistently using the same staff members, and making use of technology to automate the mechanics of the engagement wherever possible. As so much of a review consists of effective communication with clients, performing a significant proportion of the work at the client’s place of business is preferable.

Adding a Meaningful Level of Assurance to Financial Statements

In accordance with ISRE 2400 (Revised), a review engagement is not just about practitioners obtaining knowledge of their clients through questions and analysis; it also requires the accountant to dig deeper and obtain additional evidence if it is determined there may be a material misstatement in the financial statements. Additional procedures are also required when further questions arise, such as if related party transactions fall outside the normal course of business, fraud or non-compliance with laws or regulations is suspected, or doubts arise regarding the entity’s ability to continue as a going concern. This additional work effort allows for the meaningful and valuable level of assurance conveyed by the review conclusion.

Under ISRE 2400 (Revised), the practitioner is required to comply with relevant ethical requirements, including those pertaining to independence in the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), or national equivalent requirements that are at least as restrictive. The review standard also requires professional accountants to exercise professional judgment and to be skeptical throughout the engagement.

Benefits for All Parties Involved

In summary, there are benefits for all parties involved in an ISRE 2400 (Revised) review engagement. Practitioners will obtain the knowledge base to enable them to add value to their clients’ businesses while expressing the assurance conclusions needed on annual financial statements. Clients and other financial statements users will have the comfort of a meaningful level of assurance provided by an objective and independent professional accountant.

A Guide to Reviews for Practitioners and IFAC Member Bodies

The newest guide from the IFAC SMP Committee, the Guide to Review Engagements, is intended to help IFAC member organizations and their members in practice, especially small- and medium-sized practices (SMPs), with the implementation of ISRE 2400 (Revised). To help practitioners develop a deeper understanding of a review engagement conducted in compliance with the standard, the guide includes illustrative examples alongside relevant extracts from the standard. It also includes practical points for practitioners’ consideration, tips on how to efficiently implement the standard, and checklists and forms that practitioners can adapt to meet the requirements and circumstances in their particular jurisdiction.

IFAC Resources

Visit the SMP area of the IFAC website to access this and other guides. While the guide includes relevant extracts from ISRE 2400 (Revised), the complete standard is available in the 2013 IAASB Handbook (see also the At a Glance).

• Guide to Review Engagements

Additional articles:

• Review Engagements for SMEs: Limited Assurance, Numerous Benefits
• The Standard for Limited Assurance Review Engagements

Join the discussion and stay informed! Follow the SMP Committee on Twitter (@IFAC­_SMP) and LinkedIn (IFAC SMP Community). Look for additional relevant resources under Audit & Assurance, coming in April 2014 to the IFAC Global Knowledge Gateway.

The Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC) today issued proposed International Good Practice Guidance, Developing and Reporting Supplementary Financial Measures, for public comment. This guidance seeks to establish a benchmark for the use of supplementary financial measures, in order to improve understanding of an organization’s performance among management, investors, and other stakeholders.

The proposed guidance provides principles regarding the qualities measures should have and disclosures that should accompany them if reported externally. Building on the qualitative characteristics of useful financial information, the guidance recommends professional accountants consider a number of attributes when developing and reporting supplementary financial measures. The guidance also provides a number of tips for disclosure of supplementary financial measures.

The guidance is meant for all organizations that want to use supplementary financial measures, regardless of size or structure, private or public. Many such measures are widely used in both internal and external reporting, for example, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA); Underlying Profit; and Free Cash Flow.

“High-quality information is crucial for well-informed decision making about an organization, both internally and externally,” said Charles Tilley, chair of the PAIB Committee. “Well-developed supplementary financial measures increase users’ understanding of an organization and its performance.”

Supporting the profession and accountants in business is a key objective of the PAIB Committee. This type of principles-based guidance is an important aspect of achieving that objective.

“This guidance will help professional accountants in business and their organizations improve communications with their stakeholders,” said Karyn Brooks, chair of the PAIB Committee’s Business Reporting Task Force. “It will enable organizations to provide their stakeholders with improved financial and non-financial measures.”

Professional accountants, their organizations, and other interested parties are encouraged to respond to the proposed guidance to help improve its applicability in organizations of all sizes.

How to Comment
The PAIB Committee invites all stakeholders to comment. To access the Exposure Draft and submit a comment, visit the IFAC website. Comments on the Exposure Draft are requested by May 26,2014.

About International Good Practice Guidance
International Good Practice Guidance issued by the PAIB Committee cover areas of international and strategic importance in which professional accountants in business are likely to engage. In issuing principles-based guidance, IFAC seeks to foster a common and consistent approach to those aspects of the work of professional accountants in business not covered by international standards. IFAC seeks to clearly identify principles that are generally accepted internationally and applicable to organizations of all sizes in commerce, industry, education, and the public and not-for-profit sectors. Previously issued guidance is available on the IFAC website, including Preface to IFAC’s International Good Practice Guidance.

About the PAIB Committee
The PAIB Committee serves IFAC member bodies and professional accountants worldwide who work in commerce, industry, financial services, education, and the public and the not-for-profit sectors. Its aim is to promote and contribute to the value of professional accountants in business by increasing awareness of the important roles professional accountants play, supporting member bodies in enhancing the competence of their members, and facilitating the communication and sharing of good practices and ideas.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 179 members and associates in 130 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.