A public company's Q2 10-Q lands on the auditor's desk with revenue up 14% and a new $2.6 million accrual. The CFO wants the review report by Friday. The auditor did the annual audit four months ago. What standard applies, what procedures are required, and what report goes out? The interim review is a different engagement from the audit: limited assurance, narrow procedures, built on the existing audit relationship.
HIGH-FREQUENCY: Two parallel standards govern interim reviews depending on the entity. AU-C 930 (AICPA) applies to nonissuers, typically a private company whose annual auditor is engaged to review quarterly statements for lenders or regulators. PCAOB AS 4105 applies to issuers: SEC registrants must have their registered firm review interim information before each 10-Q filing. The review is not optional for issuers, so understanding the client's registration status comes before remembering either standard's procedures.
Both standards share the same objective and procedure set: limited assurance through inquiry and analytical procedures.
KEY: The interim review is not an audit. The auditor does not obtain reasonable assurance and does not express an opinion.
Common mistakes
- Treating an interim review as a mini-audit. A review is not a smaller audit. The procedures are limited to inquiry and analytical procedures. An answer choice that describes confirmation of receivables, observation of inventory, or tests of operating effectiveness as required interim review procedures is wrong.
- Forgetting the precondition that the firm must be the annual auditor. AU-C 930 is unavailable to a firm that has never audited the entity. A new firm engaged solely for the interim review must use AR-C 90 (SSARS) instead. The exam tests this directly.
- Confusing the assurance language. A review report says "not aware of any material modifications." An audit report says "present fairly, in all material respects." A compilation report says nothing: no assurance is expressed. The exam will offer one of these phrases as a distractor in a question about another engagement.
Bottom line
- Interim review is limited assurance, not an audit; the report states the auditor is "not aware of any material modifications" that should be made for conformity with the applicable framework.
- AU-C 930 governs interim reviews of nonissuers; PCAOB AS 4105 governs interim reviews of issuers (SEC registrants filing 10-Qs).
- Procedures are limited to inquiry and analytical procedures, supported by reading minutes, obtaining written representations, and comparing to the prior interim period.
- Two preconditions must hold: the firm must be the auditor of the latest annual statements, and the interim information must use the same framework as the annual statements.
Exam shortcut
When a question describes a CPA firm engaged to review quarterly financial statements of a public company, the answer is PCAOB AS 4105, the procedures are inquiry and analytical procedures, and the report expresses limited assurance with the phrase "not aware of any material modifications." Map the entity to the standard before reading the answer choices.
The full lesson (about 2,348 words, 16 min read) adds 1 worked example, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- IV.E3
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