1. 32 NOVEMBER 2013
BUSINESS
I
n support of its commitment to develop robust standards
for assurance services that meet the unique needs of small-
and medium-sized entities (SMEs), the New Zealand
Auditing and Assurance Standards Board (NZAuASB)
has approved for issue two new standards for review
engagements.
The standards will be effective for reviews of financial
statements for periods beginning on or after 1 January
2014, and will supersede the extant Review Standard (RS)
1 Statement of Review Engagement Standards.
The new review engagement standards are:
• International Standard on Review Engagements (New
Zealand) (ISRE (NZ)) 2400 Review of Historical Financial
Statements Performed by an Assurance Practitioner Who
is Not the Auditor of the Entity; and
• New Zealand Standard on Review Engagements (NZ
SRE) 2410 Review of Financial Statements Performed
by the Independent Auditor of the Entity.
On its establishment in July 2011, the NZAuASB identified
that RS-1 was in need of revision; RS-1 was originally issued
in 1989 and last amended in 2003.
The strategy of the NZAuASB is to adopt international
standards, unless there are compelling reasons not to do so.
International Standard on Review Engagements (ISRE) 2400
Engagements to Review Historical Financial Statements had
not been adopted in New Zealand, but the NZAuASB delayed
the revision of RS-1 until the release of ISRE 2400 (Revised).
The International Auditing and Assurance Standards Board
(IAASB) approved ISRE 2400 (Revised) in June 2012.
ISRE 2400 does not apply to a review of an entity’s
financial statements or interim financial information
performed by a practitioner who is the independent auditor
of the entity’s financial statements. Such a review is covered
by another international review engagement standard ISRE
2410, Review of Interim Financial Information Performed by
the Independent Auditor of the Entity. ISRE 2410 is an older
standard and is inconsistent with the clarity format, whereas
the requirements of ISRE 2400 have been updated and in
many instances could be seen to conflict with ISRE 2410.
As part of the project, the NZAuASB also considered
harmonisation with the equivalent Australian standards,
which were last revised in 2006. In Australia there is a suite
of four standards dealing with review engagements including
ASRE 2410 Review of a Financial Report Performed by the
Independent Auditor of the Entity. ASRE 2410 is based on
ISRE 2410 but has been reformatted in the clarity format
and has some additional requirements. Given the need
in New Zealand to address the situation where a review
engagement is undertaken by the auditor of the entity, the
NZAuASB decided to use ASRE 2410 as a starting point for
the additional New Zealand standard.
SUMMARY OF DIFFERENCES TO RS-1
The underlying objectives of a review engagement remain
unchanged. The new review engagement standards differ
from RS-1 in:
• scope, dealing only with reviews of historical financial
information
• structure, adopting the clarity format and splitting
the requirements between two standards depending
on whether the review is performed by an assurance
practitioner who is the auditor or not
• content, through strengthened requirements and additional
guidance.
Both ISRE (NZ) 2400 and NZSRE 2410 can be adapted as
appropriate to apply to review engagements of historical
financial information other than financial statements. ISAE
(NZ) 3000, Assurance Engagements Other than Audits
or Reviews of Historical Financial Information applies
to assurance engagements other than audits or reviews of
historical financial information.
NZSRE 2410 also differs from ISRE (NZ) 2400, in that
it recognises that the auditor’s knowledge of the entity’s
business differs from that of an assurance practitioner’s, who
does not initially have the same level of knowledge of the
business as the auditor of the entity.
By way of example of the strengthened requirements and
additional guidance, the standards direct the practitioner to
the type of conclusion that should be issued depending on
the circumstances, for example when sufficient appropriate
evidence has not been obtained or when there is a limitation
on the scope of the review. The practitioner’s reports also
include a description of the nature of a review engagement as
context for the readers of the report to be able to understand
the conclusion.
These standards enhance both the value and performance
of review engagements. Through strengthened requirements
and additional guidance, they help to ensure there is
Reviews reviewed
Two new standards for review engagements.

2. 33NOVEMBER 2013
BUSINESS
sufficient appropriate evidential support for the practitioner’s
conclusion on the financial statements and further promote
high-quality assurance engagements.
NEW ZEALAND AMENDMENTS
ISRE 2400 includes engagement level quality control
requirements at a relatively high level when compared to
ISA (NZ) 220, Quality Control for an Audit of Financial
Statements for an audit of financial statements.
Therefore additional quality control requirements have
been explicitly stated in ISRE (NZ) 2400.
ASRE 2410 does not outline clear requirements regarding
engagement level quality control but, instead of duplicating
all of the requirements and application material from ISA
(NZ) 220 in NZSRE 2410, it includes a cross-reference to
the auditing standard given that the engagement is performed
by the auditor.
An understanding of the entity’s control environment
is important to enable the assurance practitioner to apply
professional judgement in designing and performing
procedures that focus on areas in the financial statements
where material misstatements are likely to arise. Therefore,
ISRE (NZ) 2400 requires the assurance practitioner to
understand internal control, as it relates to the preparation
of the financial statements.
In ISRE (NZ) 2400 the period to be considered by the
assurance practitioner in evaluating the assessment of the
entity’s ability to continue as a going concern has been
extended from 12 months from balance sheet date to 12
months from the date of the assurance practitioner’s report.
This is consistent with the proposed changes to ISA (NZ)
570 Going Concern issued in ED2013-4.
WHAT IS A REVIEW?
The concept of a review is sometimes not well understood,
and it is believed that there are varying degrees of quality in
the reviews carried out. A review engagement is generally
regarded as a “cheaper alternative” to an audit. However, a
review is usually carried out by more senior personnel than
an audit due to the nature of the procedures involved.
A review is primarily conducted by enquiry and analytical
procedures, along with the exercise of professional judgement,
as opposed to substantive tests of detail. Therefore cost
savings expected by the entity may not eventuate.
A review is a limited assurance engagement, and the
procedures performed are substantially less than those
performed in an audit conducted in accordance with ISAs.
Accordingly, the practitioner's review engagement report
does not express an audit opinion on the financial statements.
The practitioner’s report describes whether anything
has come to the practitioner's attention that causes the
practitioner to believe the financial statements are not
prepared, in all material respects, in accordance with the
applicable financial reporting framework.
WHEN IS A REVIEW REQUIRED?
Review engagements are of particular relevance for entities
that are not required, or do not elect, to have an audit but
wish to enhance the credibility of, and confidence in, their
unaudited financial statements.
Currently, a common use of review engagements is by
not-for-profit entities that have such a provision in their
founding documents, or need to satisfy external funding
requirements.
It is likely that review engagements will become
increasingly popular when the Financial Reporting Bill is
enacted, as more entities will drop into the SME space as a
result of the increased “large” threshold.
Also, the government has recently announced statutory
assurance requirements for large and medium registered
charities. Those with between $500,000 and $1,000,000
annual operating expenditure will be able to choose to have
their financial statements reviewed as opposed to audited.
Most of the provisions of the Financial Reporting Act
2013 are expected to come into force on 1 April 2014, except
for the assurance requirements for registered charities (which
are expected to come into force on 1 April 2015).
CONCLUDING COMMENTS
The change in the regulatory environment is a significant
driver of demand for review engagements. NZICA believes
the new review engagement standards will assist practitioners
to fulfil this emerging need, and at the same time contribute
to increasing the quality of review engagements carried out
in New Zealand.
The new review engagement standards will be available
on the XRB’s website.
Zowie Murray CA is a Technical Advisor in NZICA’s Technical
Services Team.

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