Mr. James Gunn
Technical Director
IAASB
545 Fifth Avenue, 14th Floor
New York
New York 10017
USA
13 September 2011
CC.AB.BNB.CB 20110687
Re:IAASB ED Proposed International Standard on Review Engagements ISRE 2400 (Revised), Engagements to Review Historical Financial Statements
Dear Mr. Gunn,
The Compagnie Nationale des Commisssaires aux Comptes (CNCC) and the Conseil Supérieur de l’Ordre des Experts-Comptables (CSOEC) are pleased to provide you below with their comments on the IAASB ED on Proposed International Standard on Review Engagements ISRE 2400 (Revised), Engagements to Review HistoricalFinancial Statements.
Responses to the specific questions raised in the Consultation Paper are set out below.
If you have any further questions about our views on these matters, please do not hesitate to contact us.
Yours faithfully,
Claude CazesAgnes Bricard
President of CNCCPresident of CSOEC
1. Do respondents who are users or preparers of financial statements believe the proposed ISRE will result in an assurance engagement that is meaningful?
We represent the practitioners. Accordingly, we are not part of the users and the preparers of financial statements that the IAASB addresses in this question.
2. Do respondents who are practitioners believe that proposed ISRE 2400 will result in engagements that can be understood and performed by practitioners in a cost-effective manner in a way that clearly distinguishes the engagement from an audit?
Distinction between review and audit engagements
Our main concerns are about two possible risks:
-a risk of misunderstanding of the review engagement and ;
-a risk of confusion between the review and the audit engagements.
Therefore, the IAASB should ensure that a standard for review engagements is sufficiently clear and understandable for the practitioners to facilitate its application in practice and for all the users in order that they understand the level of assurance conveyed by the engagement and the report. We consider that it is important that the added value of such an engagement can be clearly explained to users.
To limit the expectation gap, we consider that the IAASB should make therequirements clear, concise and illustrate how review engagements are distinguishablefrom audit engagements.We believe that the best way to address this issue is to explain more precisely:
-in the standard, the nature and the extend of the review procedures. We consider that it would be useful to provide, in an appendix to the standard, a comparison betweenthe work performed in case of a review and the one in case of an audit;
-in the report, the work performed by the practitioners;
This should enable the practitioners and the users of the financial statements to readily draw the distinction between an audit and a review.
Concerning the report and, as mentioned here above, we encourage the IAASB to clearly explaininside the report the nature of the work performed in case of a review and, especially,in the case where the practitioner becomes aware of matters that cause the practitioner to believe the financial statements as a whole may be materially misstated. We considerthat the IAASB should:
-define the nature and the extent of the “additional procedures” as stated in the paragraph 57 of the standard;
-provide the practitioners with guidance to appreciate the trigger point at whichthey can conclude that “the matter [they become aware of] is not likely to cause the financial statements as a whole to be materially misstated”[1].
In France, we stress that the risk of confusion between the review and the audit engagement is particularly high, especially for the smallest entities which are not subject to statutory audit, for whichthree types of engagements exist:
-the compilation engagement (a non assurance engagement restricted to very limited cases), please refer to our response relating to the IAASB ED on ISRS 4410);
-the presentation engagement (an assurance engagement) that consist in expressing, based on the work performed that does not constitute an audit or a review, a moderate level of assurance regarding the consistency and the likelihood/plausibility of the financial statements taken as a whole. Please refer to our response relating to the IAASB ED on ISRS 4410;
-the review engagement (an assurance engagement).
In such a context, pedagogy seems to be necessary for bothpractitioners and users.
Distinction between ISRE 2400 andISRE 2410
The criteria to distinguish between ISRE 2400 and ISRE 2410[2] is whether the practitioner is the auditor or not of the entity’s financial statements. We encourage the IAASB to clearly explain if there are differences in the workto be performed by the practitioner depending on whether he performs the engagement in accordance with ISRE 2400 or ISRE 2410. Moreover, we consider that the proposed amendments on the examples of ISRE 2400 practitioner’s review reports should be duplicated on the examples of ISRE 2410 practitioner’s review reports on Interim Financial Information.
3. Do respondents believe that the objectives stated in the proposed ISRE appropriately describe the expected outcome of the practitioner’s work in a review engagement, and the means by which the objectives are to be achieved? Is there any wording in the objectives that might have unintended consequences, or that may blur understanding of the difference between a review and an audit?
We have no specific comment on the objectives.
4. Do respondents believe that the factors affecting engagement acceptance and continuance, and the preconditions for performing a review under the proposed ISRE, are appropriate and clearly communicated in the proposed ISRE?
Yes, we believe the preconditions for performing a review are clearly communicated in the proposed ISRE.
5. The approach to performing a review set out in the proposed ISRE (paragraphs 43 and 44) requires the practitioner to identify areas in the financial statements where material misstatements are likely to arise, based on the practitioner’s understanding of the entity and its environment, and the applicable financial reporting framework, and then to focus the design and performance of inquiry and analytical procedures in those areas.
(a) Do respondents believe this approach is appropriate for a review?
(b) Do respondents believe that the requirement and guidance in the proposed ISRE adequately convey this intended approach?
(c) Do respondents believe that the requirements and guidance relating to the practitioner’s understanding (explained in paragraph 43), and designing and performing inquiry and analytical procedures (explained in paragraph 44), are sufficient to promote performance of reviews on a reasonably consistent basis with the application of the practitioner’s professional judgment and understanding, taking account of the circumstances in individual review engagements?
We have no specific comment. We support the approach retained in paragraphs 43 and 44.
6. Do respondents agree with the requirements and guidance in the proposed ISRE (paragraphs 57 and 58) describing the trigger point at which additional procedures are required? Do respondents agree with the related requirements concerning the practitioner’s response when there are matters that cause the practitioner to believe the financial statements may be materially misstated?
Please, refer to our comment regarding point 2.
Moreover, we would like to highlight the following matters relating the “presentation engagement” in France:
-the requirement describing the trigger point at which additional procedures are required is very close to the one stated in paragraph 57 of the proposed ISRE 2400, i.e. “When the analytical procedures highlight information that is not in correlation with other information, significant variances or expected trends, the practitioner shall design additional procedures to explain these variances and these inconsistencies”;
-thewording of the conclusion in the “presentation engagement” is also expressed on a negative way.
These mattersstrengthen the risk of confusion between the “presentation” and “review” engagements in France.
7. With respect to the practitioner’s review report (as illustrated in Appendix 2 of the proposed ISRE):
(a) Do respondents believe the report adequately communicates to users the work undertaken by the practitioner for the review?
The main difference between the report on a review and an audit engagement is the wording of the opinion which is proposed to be negative in a review report compared to the positive opinion in an audit report. We believe that this reflects the level of assurance conveyed to the users.
However, the review report would be even more distinguishable from an audit report if itsstructure and appearance was significantly different. Therefore, we encourage the IAASB to carefully consider this issue.
(b) Do respondents believe that the form of the practitioner’s conclusion (that is, “nothing has come to the practitioner’s attention that causes the practitioner to believe …”) communicates adequately the assurance obtained by the practitioner? Is this form of wording of the practitioner’s conclusion preferable to other forms that have been explored by the IAASB as discussed above, including those that use wording perceived as being more positive? If not, please explain and provide alternative wording that could be used to express the practitioner’s conclusion.
We have no specific comment to report, expect the risk of confusion in France with the report issued in case of “presentation” engagement.
(c) Is the practitioner’s conclusion expressed in this form likely to be understandable and meaningful to users of the financial statements? Does this form of conclusion achieve the intended purpose of properly differentiating the conclusion reported in a review from the opinion expressed in an audit of financial statements?
Please refer to our previous comments.
Other matters:
The IAASB is also seeking comments on the matters set out below.
Users of Financial Statements of SMEs, including Regulators—Recognizing that financial statements reviewed by professional accountants under proposed ISRE 2400 will likely be of particular interest and relevance to users in the SME environment (for example, creditors, lending institutions, suppliers) and, in some cases, regulators, the IAASB invites respondents from these constituencies to comment on the proposed ISRE, in particular on the form and content of the illustrative practitioners’ reports.
Not applicable.
Developing Nations—Recognizing that many developing nations have adopted or are in the process of adopting the International Standards, the IAASB invites respondents from these nations to comment, in particular, on any foreseeable difficulties in applying the proposed ISRE in a developing nation environment.
Not applicable.
Translations—Recognizing that many respondents may intend to translate the final ISRE for adoption in their own environments, the IAASB welcomes comment on potential translation issues respondents may note in reviewing the proposed ISRE.
We have no specific comment to report.
Effective Date—Recognizing that proposed ISRE 2400 is a substantive revision of extant ISRE 2400, and given the public interest need to harmonize practice internationally as soon as practicable, the IAASB believes that an appropriate effective date for the standard would be 18 months after approval of the final standard. Assuming the IAASB finalizes the revised standard in the first half of 2012, it would then likely be effective for reviews of financial statements for periods ending on or after December 31, 2013. The IAASB welcomes comment on whether this would likely provide a sufficient period to support effective implementation of the ISRE.
We have no specific comment to report.
1/5
[1] Please refer to paragraph 57 (a)
[2]ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity