When a review conclusion must be modified
When a review conclusion under ISRE 2400 (Revised) is qualified, adverse or disclaimed, who decides, and why AI may only draft the wording.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Independent reviews are often treated as if their conclusion were fixed in advance: nothing has come to our attention, signed, done. Most of the time that is the right conclusion. But a review is still an engagement with consequences, and when the practitioner finds that the statements are materially misstated, or cannot get the information needed to conclude, the standard requires the conclusion to say so. A review report that ignores a known problem is not a lighter form of assurance. It is a misleading one.
ISRE 2400 (Revised) provides for four forms of conclusion, and the route to each parallels the audit opinion. The differences lie in the level of assurance, and in how a limitation of scope arises when the procedures are mainly inquiry and analytics.
Unmodified, qualified, adverse and disclaimer in a review
| Conclusion | When |
|---|---|
| Unmodified | The practitioner has obtained limited assurance and nothing has come to their attention that causes them to believe the statements are materially misstated |
| Qualified | The statements are materially misstated, but the effects are not pervasive; or the practitioner cannot obtain sufficient appropriate evidence about a matter whose possible effects are material but not pervasive |
| Adverse | The statements are materially misstated and the effects are pervasive |
| Disclaimer | The practitioner cannot obtain sufficient appropriate evidence and the possible effects are both material and pervasive |
The conclusion is expressed in the negative form that characterises limited assurance: "nothing has come to our attention" for an unmodified conclusion, "except for" for a qualified one. An adverse conclusion states that the statements do not present fairly, or are not prepared in accordance with the framework. A disclaimer states that the practitioner does not express a conclusion.
Material misstatement versus inability to obtain evidence
In a review, a material misstatement usually comes to light through inquiry and analytics, followed by the additional procedures ISRE 2400 (Revised) requires when the practitioner believes the statements may be materially misstated. Examples: a loan from a director presented as equity without basis, inventory carried at cost when the client admits much of it is unsaleable, a known claim not provided for or disclosed.
An inability to obtain evidence arises when management cannot or will not answer, or the records do not support the answers. A review depends on management's cooperation more than an audit does, because inquiry is most of the evidence. If management will not explain a material movement, or the practitioner cannot get access to a key person, that is a limitation. If the limitation is imposed by management after acceptance, the practitioner asks for it to be removed and, if it is not, considers withdrawal where possible.
Consulting before deciding
A modified review conclusion is unusual enough in most firms that it should not be decided by the engagement partner alone at the last minute. Staff can take a technical consultation on an engagement from question to conclusion and closure, and record a difference of opinion with each party's position, escalation and resolution. Close it before the report is signed, and record how the conclusion followed from it.
The same judgements about pervasiveness arise in audits; see qualified, adverse or disclaimer for how they are worked through.
Wording the basis paragraph
A modified conclusion is preceded by a basis section that describes the matter. For a misstatement, describe it and, where practicable, quantify its effect. For an inability to obtain evidence, say what could not be obtained and why. The paragraph should be specific enough that a reader understands what was wrong without having to read the practitioner's mind.
A worked example in words: in a review of a retailer's statements, the practitioner finds that the client has not written down inventory that it expects to sell below cost, and management declines to adjust. The effect is confined to inventory and cost of sales and is material but not pervasive. The conclusion is qualified, and the basis paragraph explains the departure and quantifies the overstatement of inventory and profit, so far as practicable.
In Achekam, the Studio builds a draft set of statements from a mapped trial balance, and the practitioner's report follows the level chosen: audit, independent review, compilation or none. Where the review is done by another firm, a firm can send a frozen set of statements to that firm on Achekam, or to an outside practitioner by e-mailed link, for an independent review under ISRE 2400 (Revised), and the reviewer's signed report is bound to that version. The reviewer's conclusion, modified or not, is attached to exactly the statements reviewed.
A person decides; AI may only draft
The conclusion is a professional judgement, and Achekam is built so that it stays one. On a working paper, staff can ask AI to draft a conclusion or a procedure's response, and a draft goes into the file only when a person saves it. Achekam's AI engine refuses any task whose type is giving an opinion, reaching a conclusion, approving or signing. In practice, a person can have the basis paragraph's wording drafted, but the choice between unmodified, qualified, adverse and disclaimer is made and signed by the engagement partner.
Sign-off has its own safeguards. Each set of statements names a preparer, a reviewer and an engagement partner, only a user with a partner role can sign, and the person recorded as preparer or reviewer cannot issue it. For a South African firm, Achekam does not check the practitioner credentials register when a partner signs statements; signing needs only the Partner role, whereas the Nigerian and Kenyan packs block signing on unverified registrations. A South African firm must itself make sure the person signing a review report is entitled to do so.
The IAASB's page on ISRE 2400 (Revised) describes the standard for reviews by a practitioner who is not the entity's auditor, including the form of the review report. The procedures that lead up to the conclusion are covered in inquiry and analytics in an independent review.
Before signing any review
Ask one question of the file: is there anything here that management refused to correct or refused to explain? If the answer is yes, the conclusion needs a decision, not a default.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
