NZ SRE 2410 (Revised)

1. This New Zealand Standard on Review Engagements (NZ SRE) 2410 (Revised) is effective for reviews of financial statements for periods ending on or after December 31, 2020, with early adoption permitted.

2. This NZ SRE 2410 (Revised) supersedes NZ SRE 2410 issued by the New Zealand Auditing and Assurance Standards Board in December 2013.

3. This NZ SRE 2410 (Revised) deals with the auditor’s responsibilities when an auditor undertakes an engagement to review the financial statements of an audit client, and on the form and content of the auditor’s review report. The term “auditor” is used throughout this NZ SRE 2410 (Revised), not because the auditor is performing an audit function but because the scope of this NZ SRE 2410 (Revised) is limited to a review performed by the independent auditor of the financial statements of the entity.

4. This NZ SRE 2410 (Revised) is directed towards a review of financial statements by an entity’s auditor. This NZ SRE 2410 (Revised) is to be applied, adapted as necessary, when an entity’s auditor undertakes an engagement to review historical financial information other than financial statements of an audit client.

5. The objective of the auditor is to plan and perform the review to enable the auditor to express a conclusion whether, on the basis of the review, anything has come to the auditor’s attention that causes the auditor to believe that the financial statement, or complete set of financial statements, is (are) not prepared, in all material respects, in accordance with the applicable financial reporting framework. (Ref: Para. A1-A3)

6. For the purposes of this NZ SRE 2410 (Revised), the following terms have the meanings attributed below:

1. Interim financial statements means financial statements that are prepared in accordance with an applicable financial reporting framework for a period that is shorter than the entity’s financial year.
2. Financial statements means a structured representation of historical financial information, including disclosures, intended to communicate an entity’s economic resources or obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework. The term “financial statements” ordinarily refers to a complete set of financial statements as determined by the requirements of the applicable financial reporting framework, but can also refer to a single financial statement. Disclosures comprise explanatory or descriptive information, set out as required, expressly permitted or otherwise allowed by the applicable financial reporting framework, on the face of the financial statement, or in the notes, or incorporated therein by cross-reference.
3. An applicable financial reporting framework means the financial reporting framework adopted by management and, where appropriate, those charged with governance in the preparation of the financial statements that is acceptable in view of the nature of the entity and the objective of the financial statements, or that is required by law or regulation.

The term “fair presentation framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework and:

(a) acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework; or

(b) acknowledges explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements. Such departures are expected to be necessary only in extremely rare circumstances.

The term “compliance framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework, but does not contain the acknowledgements in (a) or (b) above.

7. The auditor who is engaged to perform a review of financial statements shall perform the review in accordance with this NZ SRE 2410 (Revised). (Ref: Para. A4)

8. The auditor shall comply with relevant ethical requirements relating to the audit of the annual financial statements of the entity. (Ref: Para. A5)

9. The auditor shall implement quality management procedures that are applicable to the individual engagement. (Ref: Para. A6)

10. The auditor shall comply with the engagement quality management requirements of ISA (NZ) 220 (Revised)¹ when performing a review engagement in accordance with this NZ SRE 2410 (Revised).

11. The auditor shall plan and perform the review by exercising professional judgement and with an attitude of professional scepticism, recognising that circumstances may exist that cause the financial statements to require a material adjustment for it to be prepared, in all material respects, in accordance with the applicable financial reporting framework. (Ref: Para. A7)

12. The auditor shall, prior to agreeing the terms of the engagement, determine whether the financial reporting framework is acceptable and obtain agreement from those charged with governance, that they acknowledge and understand their responsibility: (Ref: Para. A8, A56 and A58)

1. For the preparation of the financial statements including where relevant their fair presentation;

2. For such internal controls as management and those charged with governance deem necessary to enable the preparation of the financial statements that are free from material misstatement; and

3. To provide the auditor with:

   • access to information relevant to the preparation of the financial statements;

   • additional information that the auditor may request for the purposes of the review engagement; and

   • unrestricted access to persons from whom the auditor determines it necessary to obtain evidence.

13. The auditor shall agree the terms of the engagement with those charged with governance, which shall be recorded in writing by the auditor and forwarded to the entity. When the review engagement is undertaken pursuant to legislation, the minimum applicable terms are those contained in the legislation.

14. The auditor shall obtain an understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control, as it relates to the preparation of both the annual and interim or other financial statements, sufficient to plan and conduct the engagement so as to be able to:

1. Identify the types of potential material misstatements and consider the likelihood of their occurrence; and

2. Select the enquiries, analytical and other review procedures that will provide the auditor with a basis for reporting whether anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework. (Ref: Para. A9-A12)

15. In order to plan and conduct a review of financial statements, a recently appointed auditor, who has not yet performed an audit of the annual financial statements in accordance with International Standards on Auditing (New Zealand), shall obtain an understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control, as it relates to the preparation of both the annual and interim or other financial statements. (Ref: Para. A13)

16. The auditor shall consider materiality, using professional judgement, when: (Ref: Para. A14-A18)

1. Determining the nature, timing and extent of review procedures; and

2. Evaluating the effect of misstatements.

17. The auditor shall make enquiries, primarily of persons responsible for financial and accounting matters, and perform analytical and other review procedures to enable the auditor to conclude whether, on the basis of the procedures performed, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework. (Ref: Para. A19-A23)

18. The auditor shall obtain evidence that the financial statements agree or reconcile with the underlying accounting records. (Ref: Para. A24)

19. The auditor shall enquire whether management has identified all events up to the date of the review report that may require adjustment to or disclosure in the financial statements. (Ref: Para. A25)

20. The auditor shall enquire whether those charged with governance have changed their assessment of the entity’s ability to continue as a going concern. When, as the result of this enquiry or other review procedures, the auditor becomes aware of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, the auditor shall:

1. Enquire of those charged with governance as to their plans for future actions based on their going concern assessment, the feasibility of these plans, and whether they believe that the outcome of these plans will improve the situation; and

2. Consider the adequacy of the disclosure about such matters in the financial statements. (Ref: Para. A26)

21. When a matter comes to the auditor’s attention that leads the auditor to question whether a material adjustment should be made for the financial statements to be prepared, in all material respects, in accordance with the applicable financial reporting framework, the auditor shall make additional enquiries or perform other procedures to enable the auditor to express a conclusion in the review report. (Ref: Para. A27)

22. The auditor shall enquire of management and, where appropriate, those charged with governance, as to the existence of any actual or suspected non-compliance with provisions of laws and regulations that are generally recognised to have a direct effect on the determination of material amounts and disclosures in the financial statements.

23. When comparative information is included for the first time in the financial statements, an auditor shall perform similar procedures on the comparative information as applied to the current period financial statements. (Ref: Para. A28-A31)

24. The auditor shall evaluate, individually and in the aggregate, whether uncorrected misstatements that have come to the auditor’s attention are material to the financial statements. (Ref: Para. A32-A34)

25. The auditor shall endeavour to obtain written representations from those charged with governance, that:

1. They acknowledge their responsibility for the design and implementation of internal control to prevent and detect fraud and error;

2. The financial statements are prepared and presented in accordance with the applicable financial reporting framework;

3. They believe the effect of those uncorrected misstatements aggregated by the auditor during the review are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. A summary of such items is included in or attached to the written representations;

4. They have disclosed to the auditor all significant facts relating to any frauds or suspected frauds known to them that may have affected the entity;

5. They have disclosed to the auditor the results of their assessment of the risk that the financial statements may be materially misstated as a result of fraud;

6. They have disclosed to the auditor all known actual or suspected non-compliance with laws and regulations, the effects of which are to be considered when preparing the financial statements;

7. They have disclosed to the auditor all significant events that have occurred subsequent to the balance sheet date and through to the date of the review report that may require adjustment to or disclosure in the financial statements; and

8. They have disclosed to the auditor all information relevant to the use of the going concern basis of accounting. (Ref: Para. A35)

26. If those charged with governance refuse to provide a written representation that the auditor considers necessary, this constitutes a limitation on the scope of the auditor’s work and the auditor shall express a qualified conclusion or a disclaimer of conclusion, as appropriate.

27. The auditor shall read the other information that accompanies the financial statements to consider whether there are any material inconsistencies with the financial statements. (Ref: Para. A36)

28. If a matter comes to the auditor’s attention that causes the auditor to believe that the other information appears to include a material misstatement of fact, the auditor shall discuss the matter with the entity’s management, and where appropriate, those charged with governance. (Ref: Para. A37)

29. When, as a result of performing a review of the financial statements, a matter comes to the auditor’s attention that causes the auditor to believe that it is necessary to make a material adjustment to the financial statements for them to be prepared, in all material respects, in accordance with the applicable financial reporting framework, the auditor shall communicate this matter as soon as practicable to the appropriate level of management.

30. When, in the auditor’s judgement, management does not respond appropriately within a reasonable period of time, the auditor shall inform those charged with governance. (Ref: Para. A38)

31. When, in the auditor’s judgement, those charged with governance do not respond appropriately within a reasonable period of time, the auditor shall consider:

1. Whether to modify the review report; or

2. The possibility of withdrawing from the engagement; and

3. The possibility of resigning from the appointment to audit the annual financial statements. (Ref: Para. A59)

32. When, as a result of performing the review of the financial statements, a matter comes to the auditor’s attention that indicates the existence of fraud or non-compliance with laws and regulations, or suspected fraud or non-compliance with laws and regulations, has occurred in the entity, the auditor shall:

1. Communicate the matter, unless prohibited by law or regulation, as soon as practicable with those charged with governance;

2. Request management’s assessment of the effect(s), if any, on the financial statements;

3. Consider the effect on the auditor’s conclusion and the review report; and

4. Determine whether law, regulation or relevant ethical requirements:

i. Require the auditor to report to an appropriate authority outside the entity.

ii. Establish responsibilities under which reporting to an appropriate authority outside the entity may be appropriate in the circumstances. (Ref: Para. A39-A40)

33. The auditor shall communicate relevant matters of governance interest arising from the review of the financial statements to those charged with governance. (Ref: Para. A41 and A60)

34. The auditor shall issue a written report that contains the following:

1. An appropriate title clearly identifying it as a review report of the independent auditor of the entity.

2. An addressee, as required by the circumstances of the engagement.

35. The first section of the auditor’s review report shall include the auditor’s conclusion, and shall have the heading “Conclusion”. The Conclusion section of the report shall:

1. Identify the entity whose financial statements have been reviewed;

2. State that the financial statements have been reviewed;

3. Identify the title of each statement comprising the financial statements;

4. Refer to the notes, including the summary of significant accounting policies; and

5. Specify the date of, or period covered by, each financial statement comprising the financial statements; and

6. Include a conclusion:

   1. When expressing an unmodified conclusion on financial statements prepared in accordance with a fair presentation framework, the report shall include a conclusion as to whether anything has come to the auditor’s attention that causes the auditor to believe that the financial statements do not present fairly, in all material respects, or if applicable are not true and fair, in accordance with the applicable financial reporting framework (including a reference to the jurisdiction or country of origin of the financial reporting framework when New Zealand is not the origin of the financial reporting framework used).
   2. When expressing an unmodified conclusion on financial statements prepared in accordance with a compliance framework, the report shall include a conclusion as to whether anything has come to the auditor’s attention that causes the auditor to believe that the financial statements have not been prepared, in all material respects, in accordance with the applicable financial reporting framework (including a reference to the jurisdiction or country of origin of the financial reporting framework when New Zealand is not the origin of the financial reporting framework used). (Ref: Para. A44)

36. The auditor’s review report shall include a section, directly following the Conclusion section, with the heading “Basis for Conclusion”, that:

1. States that the review of the financial statements was conducted in accordance with NZ SRE 2410 (Revised) Review of Financial Statements Performed by the Independent Auditor of the Entity.

2. Refers to the section of the auditor’s review report that describes the auditor’s responsibilities under NZ SRE 2410 (Revised).

3. Includes a statement that the auditor is independent of the entity in accordance with the relevant ethical requirements in New Zealand relating to the audit of the annual financial statements, and has fulfilled the auditor’s other ethical responsibilities in accordance with these requirements.

4. Includes a statement as to the existence of any relationship (other than that of auditor) which the auditor has with, or any interests which the auditor has in, the entity or any of its subsidiaries.

37. The auditor’s review report shall include a section with a heading “Responsibilities of Those Charged with Governance for the Financial Statements.” This section of the report shall describe the responsibilities of those charged with governance for the preparation of the financial statements in accordance with the applicable financial reporting framework, and for such internal control as those charged with governance determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

38. When the financial statements are prepared in accordance with a fair presentation framework, the description of responsibilities for the financial statements in the auditor’s review report shall refer to the “preparation and fair presentation of these financial statements” or “the preparation of financial statements that give a true and fair view” as appropriate.

39. The auditor’s review report shall include a section with the heading “Auditor’s Responsibilities for the Review of the Financial Statements.” This section of the auditor’s review report shall:

1. State that the auditor is responsible for expressing a conclusion on the financial statements based on the review.

2. State that a review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

3. State that a review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (New Zealand) and consequently does not enable the auditor to obtain assurance that the auditor would become aware of all significant matters that might be identified in an audit, and that accordingly no audit opinion is expressed.

40. The name of the engagement partner shall be included in the auditor’s review report on financial statements of FMC reporting entities considered to have a higher level of public accountability unless, in rare circumstances, such disclosure is reasonably expected to lead to a significant personal security threat. (Ref: Para. A47)

41. The auditor’s review report shall include:

1. The date the auditor signs the report.

2. The location in the country or jurisdiction where the auditor practices.

3. The auditor’s signature. (Ref: Para. A47)

42. The auditor shall express a qualified or adverse conclusion when a matter has come to the auditor’s attention that causes the auditor to believe that a material adjustment should be made to the financial statements for it to be prepared, in all material respects, in accordance with the applicable financial reporting framework. The auditor shall amend the heading “Basis for Conclusion” to “Basis for Qualified Conclusion” or “Basis for Adverse Conclusion” in the report, that describes the nature of the departure and, if practicable, states the effects on the financial statements. If the effects or possible effects are incapable of being measured reliably, a statement to that effect and the reasons therefore shall be included in the Basis for Conclusion section. The conclusion paragraph shall be headed “Qualified Conclusion” or “Adverse Conclusion”, whichever is relevant. (Ref: Para. A45–A46)

43. When the effect of the departure is so material and pervasive to the financial statements that the auditor concludes a qualified conclusion is not adequate to disclose the misleading or incomplete nature of the financial statements, the auditor shall express an adverse conclusion. (Ref: Para. A47)

44. When the auditor is unable to complete the review, the auditor shall communicate, in writing, to the appropriate level of management and to those charged with governance the reason why the review cannot be completed, and consider whether it is appropriate to issue a review report. (Ref: Para. A48)

45. Unless required by law or regulation, an auditor shall not accept an engagement to review the financial statements when management has imposed a limitation on the scope of the auditor’s review. (Ref: Para. A49 and A59)

46. If, after accepting the engagement, management imposes a limitation on the scope of the review, the auditor shall request management to remove the limitation. If management refuses the auditor’s request to remove the limitation, the auditor shall communicate, in writing, to the appropriate level of management and those charged with governance, the reason(s) why the review cannot be completed. (Ref: Para. A50)

47. If management and, where appropriate, those charged with governance, refuses the auditor’s request to remove a limitation that has been imposed on the scope of the review, but there is a legal or regulatory requirement for the auditor to issue a report, the auditor shall issue a disclaimer of conclusion or qualified conclusion report, as appropriate, containing the reason(s) why the review cannot be completed. (Ref: Para. A50)

48. When the auditor disclaims a conclusion on the financial statements, the auditor shall amend the description of the auditor’s responsibilities required by paragraph 38 to include only:

1. A statement that the auditor’s responsibility is to conduct the review of the entity’s financial statements in accordance with NZ SRE 2410 (Revised) Review of Financial Statements Performed by the Independent Auditor of the Entity;

2. A statement that, however, because of the matter(s) described in the Basis for Disclaimer of Conclusion section, the auditor was not able to obtain sufficient evidence to provide a basis for a review conclusion on the financial statements; and

3. The statement about auditor independence and other ethical responsibilities required by paragraphs 35(c) and (d).

49. The auditor shall express a qualified conclusion when, in rare circumstances, there is a limitation on the scope of the auditor’s work that is confined to one or more specific matters, which while material, is not in the auditor’s judgement pervasive to the financial statements, and when the auditor concludes that an unqualified conclusion cannot be expressed. A qualified conclusion shall be expressed as being “except for” the effects of the matter to which the qualification relates. The conclusion paragraph shall be headed “Qualified Conclusion”. (Ref: Para. A52-A53)

50. If adequate disclosure about the material uncertainty is made in the financial statements, the auditor shall express an unmodified conclusion and the auditor’s report shall include a separate section under the heading “Material Uncertainty Related to Going Concern” to the review report to highlight a material uncertainty relating to an event or condition that casts significant doubt on the entity’s ability to continue as a going concern. This section shall: (Ref: Para. A54-A55)

1. Draw attention to the note(s) in the financial statements that discloses the matter; and

2. State that the events or conditions indicate that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern and that the auditor’s conclusion is not modified in respect of the matter.

51. If a material uncertainty that casts significant doubt on the entity’s ability to continue as a going concern is not adequately disclosed in the financial statements, the auditor shall:

1. Express a qualified or adverse conclusion, as appropriate; and

2. In the Basis for Qualified or Adverse Conclusion section of the review report, state that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern and that the financial statements do not adequately disclose this matter.

52. If the financial statements have been prepared using the going concern basis of accounting but, in the auditor’s judgement, management’s use of the going concern basis of accounting in the preparation of the financial statements is inappropriate, the auditor shall express an adverse conclusion.

53. The auditor shall consider including an emphasis of matter paragraph to draw users’ attention to a matter presented or disclosed in the financial statements that, in the auditor’s judgement, is of such importance that it is fundamental to users’ understanding of the financial statements.

54. When the auditor includes an Emphasis of Matter paragraph in the auditor’s review report, the auditor shall:

1. Include the paragraph within a separate section of the auditor’s review report with an appropriate heading that includes the term “Emphasis of Matter”;

2. Include in the paragraph a clear reference to the matter being emphasized and to where relevant disclosures that fully describe the matter can be found in the financial statements. The paragraph shall refer only to information presented or disclosed in the financial statements; and

3. Indicate that the auditor’s conclusion is not modified in respect of the matter emphasized.

55. The auditor shall consider including an Other Matter paragraph in the review report to communicate a matter other than those that are presented or disclosed in the financial statements, that in the auditor’s judgement is relevant to users’ understanding of the review, the auditor’s responsibilities, or the review report, if not prohibited by law or regulation. When including an Other Matter paragraph in the review report, the auditor shall include a separate section with the heading “Other Matter”, or other appropriate heading.

56. The auditor shall prepare review documentation that is sufficient and appropriate to provide a basis for the auditor’s conclusion, and to provide evidence that the review was performed in accordance with this NZ SRE 2410 (Revised) and applicable legal and regulatory requirements. (Ref: Para. A61)

A1. Under paragraph 14, the auditor needs to make enquiries, and perform analytical and other review procedures in order to reduce to a limited level the risk of expressing an inappropriate conclusion when the financial statements are materially misstated.

A2. The objective of a review of the financial statements differs significantly from that of an audit conducted in accordance with International Standards on Auditing (New Zealand). A review of the financial statements does not provide a basis for expressing an opinion whether the financial statements give a true and fair view, or are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

A3. A review, in contrast to an audit, is not designed to obtain reasonable assurance that the financial statements are free from material misstatement. A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review may bring significant matters affecting the financial statements to the auditor’s attention, but it does not provide all of the evidence that would be required in an audit.

A4. Through performing the audit of the annual financial statements, the auditor obtains an understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control. When the auditor is engaged to review the financial statements, under paragraph 14, the auditor needs to update this understanding through enquiries made in the course of the review, to assist the auditor in focusing the enquiries to be made and the analytical and other review procedures to be applied. An assurance practitioner who is engaged to perform a review of the financial statements, and who is not the auditor of the entity, does not perform the review in accordance with NZ SRE 2410 (Revised)*, as the assurance practitioner ordinarily does not have the same understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control, as the auditor of the entity. Although other International Standards on Auditing (New Zealand) do not apply to review engagements, they include guidance which may be helpful to auditors performing reviews covered by this NZ SRE 2410 (Revised).

A5. Relevant ethical requirements² govern the auditor’s professional responsibilities in the following areas: independence, integrity, objectivity, professional competence and due care, confidentiality, professional behaviour, and technical standards. (Ref: Para. 8)

A6. The elements of quality management that are relevant to an individual engagement include leadership responsibilities for managing and achieving quality on the engagement, relevant ethical requirements, acceptance and continuance of client relationships and specific engagements, engagement resources, engagement performance, and monitoring and remediation. The system of quality management, and policies or procedures are the responsibility of the firm. Professional and Ethical Standard 3 (PES 3) Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, or requirements that are at least as demanding, applies to firms in respect of the firm’s engagement to review financial statements. (Ref: Para. 9)

A7. An attitude of professional scepticism denotes that the auditor makes a critical assessment, with a questioning mind, of the validity of evidence obtained and is alert to evidence that contradicts or brings into question the reliability of documents or representations by those charged with governance of the entity. ISA (NZ) 200 includes guidance which may be helpful.*(Ref: Para. 11)

A8. Written agreement of the terms of the engagement helps to avoid misunderstandings regarding the nature of the engagement and, in particular, the objective and scope of the review, the responsibilities of those charged with governance, the extent of the auditor’s responsibilities, the assurance obtained, and the nature and form of the report. The communication ordinarily covers the following matters:

1. the objective of a review of the financial statements;

2. the scope of the review;

3. the responsibilities of those charged with governance for:

   1. the preparation of the financial statements in accordance with the applicable financial reporting framework including where relevant their fair presentation;

   2. establishing and maintaining effective internal control relevant to the preparation of the financial statements; and

   3. making all financial records and related information available to the auditor;

4. agreement from those charged with governance:

   1. to provide written representations to the auditor to confirm representations made orally during the review, as well as representations that are implicit in the entity’s records; and

   2. that where any document containing the financial statements indicates that the financial statements have been reviewed by the entity’s auditor, the review report also will be included in the document; and

5. the anticipated form and content of the report to be issued, including the identity of the addressee of the report.

An illustrative engagement letter is set out in Appendix 1. The terms of engagement to review the financial statements can also be combined with the terms of engagement to audit the annual financial statements. ISA (NZ) 210 includes guidance which may be helpful.* (Ref: Para. 12)

A9. Under ISA (NZ) 315 (Revised 2019) Identifying and Assessing the Risks of Material Misstatement, the auditor who has audited the entity’s financial statements for one or more annual periods has obtained an understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control, as it relates to the preparation of the annual financial statements, that was sufficient to conduct the audit. In planning a review of the financial statements, the auditor needs to update this understanding. The auditor also needs to obtain a sufficient understanding of the entity’s system of internal control as it relates to the preparation of the financial statements subject to review, as it may differ from internal control as it relates to the preparation of the annual financial statements. (Ref: Para. 14)

A10. The auditor needs to use the understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control, to determine the enquiries to be made and the analytical and other review procedures to be applied, and to identify the particular events, transactions or assertions to which enquiries may be directed or analytical or other review procedures applied. (Ref: Para. 14)

A11. The procedures performed by the auditor to update the understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control, ordinarily include the following:

1. reading the documentation, to the extent necessary, of the preceding year’s audit, reviews of prior period(s) of the current year, and corresponding period(s) of the prior year, to enable the auditor to identify matters that may affect the current-period financial statements;

2. considering any significant risks, including the risk of management override of controls, that were identified in the audit of the prior year’s financial statements;

3. reading the most recent annual and comparable prior period financial statements;

4. considering materiality with reference to the applicable financial reporting framework as it relates to the financial statements, to assist in determining the nature and extent of the procedures to be performed and evaluating the effect of misstatements;

5. considering the nature of any corrected material misstatements and any identified uncorrected immaterial misstatements in the prior year’s financial statements;

6. considering significant financial accounting and reporting matters that may be of continuing significance, such as material weaknesses in internal control;

7. considering the results of any audit procedures performed with respect to the current year’s financial statements;

8. considering the results of any internal audit performed and the subsequent actions taken by management;

9. enquiring of management about the results of management’s assessment of the risk that the financial statements may be materially misstated as a result of fraud;

10. enquiring of management and of other appropriate individuals within the entity about the effect of changes in the entity’s business activities;

11. enquiring of management about any significant changes in internal control and the potential effect of any such changes on the preparation of the financial statements; and

12. enquiring of management of the process by which the financial statements have been prepared and the reliability of the underlying accounting records to which the financial statements are agreed or reconciled. (Ref: Para. 14)

A12. The auditor needs to determine the nature of the review procedures, if any, to be performed for components and, where applicable, communicate these matters to other auditors involved in the review. Factors considered ordinarily include the materiality of, and risk of misstatement in, the financial information of the component, and the auditor’s understanding of the extent to which internal control over the preparation of such financial information is centralised or decentralised. (Ref: Para. 14)

A13. Obtaining an understanding of the entity and its environment enables the auditor to focus the enquiries made, and the analytical and other review procedures applied in performing a review of the financial statements in accordance with this NZ SRE 2410 (Revised). As part of obtaining this understanding, ordinarily the auditor makes enquiries of the predecessor auditor and, where practicable, reviews the predecessor auditor’s documentation for the preceding annual audit and for any prior periods in the current year that have been reviewed by the predecessor auditor. In doing so, ordinarily the auditor considers the nature of any corrected misstatements, and any uncorrected misstatements aggregated by the auditor, any significant risks, including the risk of management override of controls, and significant accounting and any reporting matters that may be of continuing significance, such as material weaknesses in internal control. (Ref: Para. 15)

A14. The auditor needs to use professional judgement and consider qualitative and quantitative factors in determining materiality.

A15. Ordinarily, the auditor’s consideration of materiality for a review of the financial statements is based on the period financial data and accordingly, materiality based on interim period financial data may be less than materiality for annual financial data. If the entity’s business is subject to cyclical variations or if the financial results for the current period show an exceptional decrease or increase compared to prior periods and expected results for the current year, the auditor may, for example, conclude that materiality is more appropriately determined using a normalised figure for the period.

A16. The auditor’s consideration of materiality, in evaluating the effects of misstatements, is a matter of professional judgement and is affected by the auditor’s perception of the financial information needs of users of the financial statements.

A17. If the applicable financial reporting framework contains a definition of materiality, it will ordinarily provide a frame of reference to the auditor when determining materiality for planning and performing the review.

A18. The auditor needs, when relevant, to consider materiality from the perspective of both the entity and the consolidated entity.

A19. A review ordinarily does not require tests of the accounting records through inspection, observation or confirmation. Procedures for performing a review of the financial statements ordinarily are limited to making enquiries, primarily of persons responsible for financial and accounting matters and applying analytical and other review procedures, rather than corroborating information obtained concerning matters relating to the financial statements. The auditor’s understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control, the results of the risk assessments relating to the preceding audit and the auditor’s consideration of materiality as it relates to the financial statements, affects the nature and extent of the enquiries made, and analytical and other review procedures applied. (Ref: Para. 17)

A20. The auditor ordinarily performs the following procedures:

1. Reading the minutes of the meetings of shareholders, those charged with governance and other appropriate committees to identify matters that may affect the financial statements, and enquiring about matters dealt with at meetings for which minutes are not available that may affect the financial statements.

2. Considering the effect, if any, of matters giving rise to a modification of the audit or review report, accounting adjustments or unadjusted misstatements, at the time of the previous audit or reviews.

3. Communicating, where appropriate, with other auditors who are performing a review of the financial statements of the entity’s significant components.

4. Enquiring of members of management responsible for financial and accounting matters, and others as appropriate, about the following:

   1. whether the financial statements have been prepared and presented in accordance with the applicable financial reporting framework;

   2. whether there have been any changes in accounting principles or in the methods of applying them;

   3. whether any new transactions have necessitated the application of a new accounting principle;

   4. whether the financial statements contain any known uncorrected misstatements;

   5. unusual or complex situations that may have affected the financial statements, such as a business combination or disposal of a segment of the business;

   6. significant assumptions that are relevant to the fair value measurement or disclosures and management’s intention and ability to carry out specific courses of action on behalf of the entity;

   7. whether related party transactions have been appropriately accounted for and disclosed in the financial statements;

   8. significant changes in commitments and contractual obligations;

   9. significant changes in contingent assets and contingent liabilities including litigation or claims;

   10. compliance with debt covenants;

   11. matters about which questions have arisen in the course of applying the review procedures;

   12. significant transactions occurring in the last several days of the period or the first several days of the next period;

   13. knowledge of any fraud or suspected fraud affecting the entity involving:

       • management;

       • employees who have significant roles in internal control; or

       • others where the fraud could have a material effect on the financial statements; and

   14. knowledge of any allegations of fraud, or suspected fraud, affecting the entity’s financial information communicated by employees, former employees, analysts, regulators or others; and

   15. knowledge of any actual or suspected non-compliance with laws and regulations that could have a material effect on the financial statements. If the auditor becomes aware of any actual or suspected non-compliance with laws and regulations ISA (NZ) 250 (Revised) Consideration of Laws and Regulations in an Audit of Financial Statements provides guidance.

5. Applying analytical procedures to the financial statements designed to identify relationships and individual items that appear to be unusual and that may reflect a material misstatement in the financial statements. Analytical procedures may include ratio analysis and statistical techniques such as trend analysis or regression analysis and may be performed manually or with the use of computer- assisted auditing techniques. Appendix 2 to this NZ SRE 2410 (Revised) contains examples of analytical procedures the auditor may consider when performing a review of the financial statements.

6. Reading the financial statements and considering whether anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not in accordance with the applicable financial reporting framework. (Ref: Para. 17)

A21. The auditor may perform many of the review procedures before or simultaneously with the entity’s preparation of the financial statements. For example, it may be practicable to update the understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control, and begin reading applicable minutes before the end of the period. Performing some of the review procedures earlier in the period also permits early identification and consideration of significant accounting matters affecting the financial statements. (Ref: Para. 17)

A22. The auditor performing a review of the financial statements is also the auditor of the annual financial statements of the entity. For convenience and efficiency, the auditor may decide to perform certain audit procedures concurrently with the review of the financial statements. For example, information gained from reading the minutes of meetings of the board of directors in connection with the review of the financial statements may also be used for the annual audit. The auditor may decide also to perform, at the time of the review, auditing procedures that would need to be performed for the purpose of the audit of the annual financial statements, for example, performing auditing procedures on:

1. significant or unusual transactions that occurred during the period, such as business combinations, restructurings, or significant revenue transactions, or

2. opening balances (when applicable). (Ref: Para. 17)

A23. A review of financial statements ordinarily does not require corroborating the enquiries about litigation or claims. It is, therefore, ordinarily not necessary to send an enquiry letter to the entity’s lawyer. Direct communication with the entity’s lawyer with respect to litigation or claims, or alternative procedures, may, however, be appropriate if a matter comes to the auditor’s attention that causes the auditor to question whether the financial statements are in accordance with the applicable financial reporting framework. (Ref: Para. 17)

A24. The auditor may obtain evidence that the financial statements agree or reconcile with the underlying accounting records by tracing the financial statements to:

1. the accounting records, such as the general ledger, or a consolidating schedule that agrees or reconciles with the accounting records; and

2. other supporting data in the entity’s records as necessary. (Ref: Para. 18)

A25. The auditor need not perform procedures to identify events occurring after the date of the review report. (Ref: Para. 19)

A26. Events or conditions which may cast significant doubt on the entity’s ability to continue as a going concern may have existed at the date of the annual financial statements, or may be identified as a result of enquiries of management or in the course of performing other review procedures. When such events or conditions come to the auditor’s attention, the auditor needs to enquire of those charged with governance as to their plans for future action, such as their plans to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital. The auditor needs to enquire also as to the feasibility of the plans of those charged with governance and whether they believe that the outcome of these plans will improve the situation. Ordinarily, the auditor considers, based on procedures performed, whether it is necessary to corroborate the feasibility of the plans of those charged with governance and whether the outcome of these plans will improve the situation. (Ref: Para. 20)

A27. For example, if the auditor’s review procedures lead the auditor to question whether a significant sales transaction is recorded in accordance with the applicable financial reporting framework, the auditor performs additional procedures sufficient to resolve the auditor’s questions, such as discussing the terms of the transaction with senior marketing and accounting personnel or reading the sales contract. (Ref: Para. 21)

A28. When comparative information is included in the first financial statements and the auditor is unable to obtain sufficient appropriate review evidence to achieve the review objective, a limitation on the scope of the review exists and the auditor needs to modify the review report. Ordinarily, a restriction on the scope of the auditor’s work will result in a qualified (“except for”) conclusion. In such cases, ordinarily an auditor encourages clear disclosure in the financial statements, that the auditor has been unable to review the comparatives. ISA (NZ) 510³ includes illustrative examples that may be useful in circumstances when the comparative information has not been audited or reviewed.

A29. When comparative information is included in the first financial statements and the auditor believes a material adjustment should be made to the financial statements, under paragraph 41, the auditor needs to modify the review report.

A30. When an entity has come into existence only within the first financial reporting period, comparative information will not be provided in the first financial statements and no modified review report is required.

A31. New Zealand Equivalent to International Accounting Standard 1 Presentation of Financial Statements provides requirements and explanatory guidance relating to comparative information included in financial statements prepared in accordance with New Zealand Accounting Standards. New Zealand Equivalent to International Financial Reporting Standards 1 First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards provides requirements and guidance relating to comparative information when an entity adopts New Zealand Equivalents to International Financial Reporting Standards for the first time.

A32. A review of the financial statements, in contrast to an audit engagement, is not designed to obtain reasonable assurance that the financial statements are free from material misstatement. However, misstatements which come to the auditor’s attention, including inadequate disclosures, need to be evaluated individually and in the aggregate to determine whether a material adjustment is required to be made to the financial statements for them to be prepared, in all material respects, in accordance with the applicable financial reporting framework.

A33. The auditor needs to exercise professional judgement in evaluating the materiality of any misstatements that the entity has not corrected. Ordinarily, the auditor considers matters such as the nature, cause and amount of the misstatements, whether the misstatements originated in the preceding year or current year, and the potential effect of the misstatements on future interim or annual periods.

A34. The auditor may designate an amount below which misstatements need not be aggregated, because the auditor expects that the aggregation of such amounts clearly would not have a material effect on the financial statements. In so doing, under paragraph 16, the auditor needs to consider the fact that the determination of materiality involves quantitative as well as qualitative considerations and that misstatements of a relatively small amount could nevertheless have a material effect on the financial statements.

A35. The auditor needs to endeavour to obtain additional representations as are appropriate to matters specific to the entity’s business or industry. An illustrative representation letter is set out in Appendix 1. (Ref: Para. 25)

A36. An auditor conducting a review engagement under this review standard is not required to comply with ISA (NZ) 720 (Revised)⁴, however ISA (NZ) 720 (Revised) includes guidance which may be useful. ISA (NZ) 720 (Revised) requires an auditor to read the other information that accompanies the financial statements to consider whether there is a material inconsistency with the financial statements. If the auditor identifies a material inconsistency, the auditor needs to consider whether the financial statements or the other information needs to be amended. If an amendment is necessary in the financial statements and those charged with governance refuse to make the amendment, the auditor needs to consider the implications for the review report. If an amendment is necessary in the other information and those charged with governance refuse to make the amendment, the auditor may consider including an Other Information paragraph in the review report and describes the material misstatement. For example, those charged with governance may present alternative measures of earnings that more positively portray financial performance than the financial statements, and such alternative measures are given excessive prominence, or are not clearly defined, or not clearly reconciled to the financial statements such that they are confusing and potentially misleading. (Ref: Para. 27)

A37. While reading the other information for the purpose of identifying material inconsistencies, an apparent material misstatement of fact may come to the auditor’s attention (that is, information, not related to matters appearing in the financial statements, that is incorrectly stated or presented). When discussing the matter with the entity’s management, ordinarily the auditor considers the validity of the other information and management’s responses to the auditor’s enquiries, whether valid differences of judgement or opinion exist and whether to request management to consult with a qualified third party to resolve the apparent misstatement of fact. If an amendment is necessary to correct a material misstatement of fact and management refuses to make the amendment, ordinarily the auditor considers taking further action as appropriate, such as notifying those charged with governance and, if necessary, considering the implications for the review report. ISA (NZ) 720 (Revised) includes guidance which may be helpful. (Ref: Para. 28)

A38. Communications with management and/or those charged with governance are made as soon as practicable, either orally or in writing. The auditor’s decision whether to communicate orally or in writing ordinarily is affected by factors such as the nature, sensitivity and significance of the matter to be communicated and the timing of the communications. If the information is communicated orally, under paragraph 55, the auditor needs to document the communication. (Ref: Para. 30, 32)

A39. The determination of which level of management may also be informed is affected by the likelihood of collusion or the involvement of a member of management. (Ref: Para. 32)

A40. Law or regulation may restrict the auditor’s communication of certain matters with management or those charged with governance. Law or regulation may specifically prohibit a communication, or other action, that might prejudice an investigation by an appropriate authority into an actual, or suspected, illegal act, including alerting the entity, for example, when the auditor is required to report identified or suspected non- compliance with laws and regulation to an appropriate authority pursuant to anti-money laundering legislation. In these circumstances, the issues considered by the auditor may be complex and the auditor may consider it appropriate to obtain legal advice. ISA (NZ) 250 (Revised) includes guidance which may be helpful.⁵ (Ref. Para 32)

A41. As a result of performing a review of financial statements, the auditor may become aware of matters that in the opinion of the auditor are both important and relevant to those charged with governance in overseeing the financial reporting and disclosure process. (Ref: Para. 33)

A42. In rare circumstances, the auditor may identify information or be subject to experiences that indicate the likelihood of a personal security threat that, if the identity of the engagement partner is made public, may result in physical harm to the engagement partner, other engagement team members or other closely related individuals. However, such a threat does not include, for example, threats of legal liability or legal, regulatory or professional sanctions. Discussions with those charged with governance about circumstances that may result in physical harm may provide additional information about the likelihood or severity of the significant personal security threat. Law or regulation may establish further requirements that are relevant to determining whether the disclosure of the name of the engagement partner may be omitted.

A43. Appendix 3 contains illustrations of the auditor’s review reports incorporating the elements in paragraphs 33 to 51. With the exception of the Conclusion and Basis for Conclusion sections, this review standard does not establish requirements for ordering the elements of the auditor’s review report. However, this review standard requires the use of specific headings, which are intended to assist in making reports more consistent and recognisable.

A44. Paragraph 34(f)(i) includes the conclusion required for review of financial statements prepared under a fair presentation framework and a compliance framework. In some cases, law or regulation governing the review of financial statements may prescribe wording for the auditor’s conclusion that is different from the wording described in paragraph 34(f). Although the auditor may be obliged to use the prescribed wording, the auditor’s responsibilities as described in this NZ SRE 2410 (Revised) for coming to the conclusion remain the same. ISA (NZ) 700 (Revised) includes guidance which may be helpful.⁶ Illustrative auditor’s review reports are set out in Appendix 3.

A45. ISA (NZ) 705⁷ and ISRE (NZ) 2400⁸ includes guidance that may be useful when issuing a modified conclusion.

A46. If matters have come to the auditor’s attention that cause the auditor to believe that the financial statements are or may be materially affected by a departure from the applicable financial reporting framework, and those charged with governance do not correct the financial statements, the auditor needs to modify the review report. If the information that the auditor believes is necessary for adequate disclosure is not included in the financial statements, the auditor needs to modify the review report and, if practicable, include the necessary information in the review report. Illustrative auditor’s review reports with a qualified conclusion are set out in Appendix 3.

A47. Departures from the applicable financial reporting framework, may result in an adverse conclusion. An illustrative auditor’s review report with an adverse conclusion is set out in Appendix 3.

A48. Ordinarily, a limitation on scope prevents the auditor from completing the review.

A49. The auditor needs to refuse to accept an engagement to review financial statements if the auditor’s preliminary knowledge of the engagement circumstances indicates that the auditor would be unable to complete the review because there will be a limitation on the scope of the auditor’s review imposed by management of the entity. (Ref: Para. 45)

A50. If, after accepting the engagement, management imposes a limitation on the scope of the review, the auditor needs to request the removal of that limitation. If management refuses to do so, the auditor is unable to complete the review and express a conclusion. In such cases, the auditor needs to communicate, in writing, to the appropriate level of management and those charged with governance, the reason(s) why the review cannot be completed. Nevertheless, if a matter comes to the auditor’s attention that causes the auditor to believe that a material adjustment to the financial statements is necessary for the financial statements to be prepared, in all material respects, in accordance with the applicable financial reporting framework, under paragraphs 28, 29 and 31, the auditor needs to communicate such matters to the appropriate level of management and, where appropriate, those charged with governance. (Ref: Para. 46)

A51. The auditor needs to consider the legal and regulatory requirements, including whether there is a legal requirement for the auditor to issue a report. If there is such a requirement, the auditor needs to disclaim a conclusion and provide in the review report the reason why the review cannot be completed. However, if a matter comes to the auditor’s attention that causes the auditor to believe that a material adjustment to the financial statements is necessary for the financial statements to be prepared, in all material respects, in accordance with the applicable financial reporting framework the auditor needs to communicate such a matter in the report. (Ref: Para. 47)

A52. A limitation on scope may occur due to circumstances other than a limitation on scope imposed by management or those charged with governance. In such circumstances, the auditor is ordinarily unable to complete the review and express a conclusion, and is guided by paragraphs 48 and 51. There may be, however, some rare circumstances where the limitation on the scope of the auditor’s work is clearly confined to one or more specific matters that, while material, are not in the auditor’s judgement pervasive to the financial statements. In such circumstances, the auditor needs to modify the auditor’s review report by indicating that, except for the effects of the matter which is described in the Basis for Qualified Conclusion section of the auditor’s review report, the review was conducted in accordance with this NZ SRE 2410 (Revised), and by qualifying the conclusion. Illustrative auditor’s review reports with a qualified conclusion are set out in Appendix 3.

A53. The auditor may have expressed a qualified opinion on the audit of the latest annual financial statements because of a limitation on the scope of that audit. The auditor needs to consider whether that limitation on scope still exists and, if so, the implications for the review report.

A54. The auditor may have alerted users to the existence of a material uncertainty relating to an event or condition that casts significant doubt on the entity’s ability to continue as a going concern by adding a separate section under the heading “Material Uncertainty Related to Going Concern” to a prior audit or review report. If the material uncertainty still exists and adequate disclosure is made in the financial statements, the auditor needs to continue to alert users by adding a separate section under the heading “Material Uncertainty Related to Going Concern” to highlight the continued material uncertainty.

A55. If, as a result of enquiries or other review procedures, a material uncertainty relating to an event or condition comes to the auditor’s attention that casts significant doubt on the entity’s ability to continue as a going concern, and adequate disclosure is made in the financial statements, the auditor alerts users to the existence of a material uncertainty related to going concern in a separate section. ISA (NZ) 570 (Revised) Going Concern provides information that the auditor may find helpful in considering going concern in the context of the review engagement.

A56. The terms of the engagement include agreement by those charged with governance that, where any document containing the financial statements indicates that the financial statements have been reviewed by the entity’s auditor, the review report will be also included in the document. If those charged with governance have not included the review report in the document, ordinarily the auditor considers seeking legal advice to assist in determining the appropriate course of action in the circumstances. (Ref: Para. 12)

A57. If the auditor has issued a modified review report and those charged with governance issue the financial statements without including the modified review report in the document containing the financial statements, ordinarily the auditor considers seeking legal advice to assist in determining the appropriate course of action in the circumstances, and the possibility of resigning from the appointment to audit the annual financial statements.

A58. The auditor needs to communicate the terms of engagement to the entity subject to the review. When communicating the terms of engagement, an engagement letter helps to avoid misunderstandings regarding the nature of the engagement and, in particular, the objective and scope of the review, the responsibilities of those charged with governance, the extent of the auditor’s responsibilities, the assurance obtained, and the nature and form of the report. Law or regulation governing review engagements in the public sector ordinarily mandates the appointment of the auditor. Nevertheless, an engagement letter setting out the matters referred to in paragraph A8 may be useful to both the public sector auditor and the entity subject to the review. Public sector auditors, therefore, consider communicating the terms of a review engagement by way of an engagement letter⁹. (Ref: Para. 12)

A59. In the public sector, the auditor’s statutory audit obligation may extend to other work, such as a review of interim financial information. Where this is the case, the public sector auditor cannot avoid such an obligation and, consequently, may not be in a position not to accept, or to withdraw from a review engagement. The public sector auditor also may not be in the position to resign from the appointment to audit the annual financial statements. (Ref: Para. 31(b)-31(c))

A60. The auditor needs to communicate to those charged with governance and consider the implications for the review when a matter comes to the auditor’s attention that causes the auditor to believe in the existence of fraud or actual or suspected non-compliance by the entity with laws and regulations. In the public sector, the auditor may be subject to statutory or other regulatory requirements to report such a matter to regulatory or other public authorities. (Ref: Para. 33)

A61. The auditor needs to prepare documentation that enables an experienced auditor having no previous connection with the engagement to understand the nature, timing and extent of the enquiries made and analytical and other review procedures applied, information obtained, and any significant matters considered during the performance of the review, including the disposition of such matters.