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ISRS 4410 (Revised) Compilation Engagements, A Standard for Today's Financial Reporting Needs


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Presentation by Phil Cowperthwaite, IFAC SMP Committee member at the Malaysian Institute of Accountants, Auditing Micro-entitiesEfficiently and Effectively, March 23, 2012, Kuala Lumpur.

Published in: Business, Economy & Finance

ISRS 4410 (Revised) Compilation Engagements, A Standard for Today's Financial Reporting Needs

  1. 1. ISRS 4410 (Revised) –Compilation EngagementsA standard for today‟s financial reporting needs Kuala Lumpur March 23, 2012 Page 1 | Confidential and Proprietary Information
  2. 2. ISRS 4410 (revised)• A flexible standard for the professional accountant in public practice• Adaptable to a wide variety of non-assurance engagements• Effective for compilation reports issued on or after September 1, 2013• Early adoption permitted Page 2 | Confidential and Proprietary Information
  3. 3. Benefits to the engagementWhat your client gains-• Your expertise in accounting and financial reporting tailored to their specific needs• An objective view from a professional accountant• A clear report outlining the nature of the engagementWhat you gain from the engagement-• Clearly communicated terms of engagement• Flexibility to deliver a meaningful service• A happy client  Page 3 | Confidential and Proprietary Information
  4. 4. Why and when to use 4410• 4410 (Revised) can be tailored to your engagements• The prescribed report clearly describes: – Management responsibilities – Your value added and your responsibilities – That no assurance is being given by you• If stating compliance with 4410, you must issue a report prescribed by 4410 Page 4 | Confidential and Proprietary Information
  5. 5. Flexibility in financial reporting• The basis of accounting can be complex or simple• It must be appropriate to the engagement• The basis is always disclosed as part of the compiled financial information Page 5 | Confidential and Proprietary Information
  6. 6. Understanding your client• You need sufficient understanding of: – The entity‟s business and operations and – The financial reporting framework To be able to perform the compilation.This may require a lot or a little depending on theengagement Page 6 | Confidential and Proprietary Information
  7. 7. Communicating with clientsCommunication is required throughout the standard.Specifically: – In the engagement acceptance phase – All significant matters during the engagement – A report accompanying the compiled information Page 7 | Confidential and Proprietary Information
  8. 8. Significant judgmentsManagement is responsible for the reported information• Not required to second guess management judgments• You must discuss significant judgments with management where you have provided assistance• Discussion must be sufficient to allow management to take responsibility for the compiled information Page 8 | Confidential and Proprietary Information
  9. 9. Ethical responsibilities• Must comply with the IESBA Code• No requirement for independence• If you know compiled information to be materially misstated or misleading, you must resign. No middle ground. Page 9 | Confidential and Proprietary Information
  10. 10. Summing it upISRS 4410 (Revised) New opportunities for professional accountants Flexibility permits good client service A focus on communication throughout Promotes consistent high quality practice Clients and accountants will benefit Page 10 | Confidential and Proprietary Information
  11. 11. ISRS 4410 (Revised) Try it. You and your clients will benefit. Page 11 | Confidential and Proprietary Information
  12. 12. REVIEW ENGAGEMENTSAN ASSURANCE ALTERNATIVEISRE 2400• Under revision now• Completes the suite of standards for professional accountants and their clients– Reasonable assurance - audits - the ISAs– Limited assurance - reviews - ISRE 2400– No assurance – compilations – ISRS 4410 Page 12 | Confidential and Proprietary Information
  13. 13. 2400 – Basic conceptsLimited assurance – what is it?• Risk of undetected misstatement greater than in an audit• Assurance must be meaningful to users of the information Page 13 | Confidential and Proprietary Information
  14. 14. A limited assurance engagement• The report conclusion is evidenced based• Specified procedures are required• Professional judgment required throughout• Ethics based (independence/competence/due care)• Firms must be in compliance with ISQC1 Page 14 | Confidential and Proprietary Information
  15. 15. Challenges in Defining a middle ground• How much evidence is enough to support the conclusion “nothing has come to my attention…”?• Needs a practitioner with up-to-date assurance skills• A review is not „audit-lite‟. If statements cannot be audited, they likely cannot be reviewed either Page 15 | Confidential and Proprietary Information
  16. 16. The review process #1Engagement acceptance• Confirm management‟s responsibility• Review management‟s integrity – critical for inquiry• Are systems likely sufficient to produce data adequate for meaningful analytical review? Page 16 | Confidential and Proprietary Information
  17. 17. The review process #2Develop an understanding of what?1) The entity and its environment and2) The reporting frameworkSufficient to do what?To identify areas where material misstatements are likely toarise Page 17 | Confidential and Proprietary Information
  18. 18. The review process #3Perform primarily inquiry and analysis on:1) All material items and2) Focus on areas where material misstatements likely to ariseInquiry to include questions on fraud and going concernNo prohibition on performing other procedures. Page 18 | Confidential and Proprietary Information
  19. 19. How much evidence is needed?• Sufficient to be able to conclude that nothing has come to your attention that the statements are materially misstated.• This is not a „did nothing, saw nothing‟ conclusion. It is a conclusion based on a significant understanding of the entity and evidence gathering procedures by a professional accountant skilled in assurance techniques. Page 19 | Confidential and Proprietary Information
  20. 20. The review process #4If you have cause to believe the statements may bematerially misstated, you must perform additional proceduresto:1) Conclude „nothing has come to your attention…‟ or2) Determine the statements are misstated and modify the conclusion accordingly. Page 20 | Confidential and Proprietary Information
  21. 21. Communication criticalCommunication is emphasized throughout 2400:• At the engagement acceptance phase• At the planning phase with the client and staff• Inquiry of management and others at every stage• All significant matters identified in the engagement• In the review report itself Page 21 | Confidential and Proprietary Information
  22. 22. Summing it all up• 2400 is a nuanced standard• Part of the suite of standards covering services offered by professional accountants to their client• Result in a meaningful level of assurance to users at an appropriate price Page 22 | Confidential and Proprietary Information
  23. 23. Reviews and compilations Thank you for your attention. Any questions? Page 23 | Confidential and Proprietary Information
  24. 24.