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2.3 Determining the scope of the review

Consider:

 Knowledge acquired previously about the client.

 Nature of the accounting systems.

 Types of material misstatement and the likelihood of occurrence.

 The extent to which items are affected by management judgment.

 Materiality of transactions and balances.

2.4 Procedures in review engagements

Procedures concentrate primarily on:

 enquiries of relevant parties (usually management).

 analytical procedures.

Analytical procedures should be designed to identify relationships and individual
items that appear unusual. Such procedures might include:

 Comparison of the current financial statements vs. prior periods.

 Comparison of the current financial statements vs. forecasts or budgets.

 Review relationships within the financial statements that would be expected to
conform to a predictable pattern based on previous patterns for the entity or
industry norms:

– Gross profit margin

– Net profit margin

– Interest cover

– Receivables days

– Payables days

– Inventory days.

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