Quarterly limited reviews for listed companies: what's different from year-end

Listed companies in India have to publish unaudited financial results for each of the first three quarters within 45 days of the quarter end and audited results for the fourth quarter (or for the year) within 60 days of the year end. SEBI's Listing Obligations and Disclosure Requirements Regulation 33 requires those quarterly results to be reviewed by the company's statutory auditor.

That quarterly review is a limited review, not an audit. It is governed by SRE 2400 — Engagements to Review Historical Financial Statements — issued by ICAI. The procedures, the assurance level, and the auditor's responsibility are different from the year-end audit. Most listed CFOs we work with treat each quarterly review like a mini-audit anyway. That is not the standard. It is the practical response to having the auditor on-site and the disclosure deadline two weeks out.

Limited assurance versus reasonable assurance

The audit at year-end is a 'reasonable assurance' engagement. The auditor performs substantive testing of balances and transactions, tests internal controls where reliance is planned, and reaches a positive opinion: 'in our opinion, the financial statements give a true and fair view.'

The quarterly limited review is a 'limited assurance' engagement. The auditor performs primarily analytical procedures and inquiries of management. The opinion is negative: 'based on our review, nothing has come to our attention that causes us to believe that the financial results are not prepared in accordance with the applicable framework.'

The difference in assurance level is real but often misunderstood. The negative-form opinion is not a weaker version of the audit opinion. It is a different kind of opinion altogether. The auditor has not performed audit-level procedures and is not concluding that the financial results are correct. The auditor is concluding that, based on procedures designed to provide limited assurance, no material misstatement was identified.

What gets done in a limited review

SRE 2400 sets the procedures. They cluster around three categories.

Analytical procedures. Year-on-year and quarter-on-quarter comparisons of P&L lines and balance-sheet balances. Ratio analysis — gross margin trend, working capital turnover, debt-equity. The auditor looks for unexpected variations and investigates the ones that are material.

Inquiries of management. Conversations with the CFO, controller, and relevant process owners about significant transactions during the quarter, accounting policy decisions, new contracts, changes in estimates, and any unusual items. Inquiries also cover internal control changes, litigation developments, regulatory communications, and subsequent events between quarter-end and the review date.

Limited corroborative procedures. Reading minutes of board and audit committee meetings, reading agreements signed during the quarter that are material, checking compliance with covenants if borrowings exist, and reviewing the bank reconciliations and trial balance.

What does not happen: detailed sampling of transactions, vouching to supporting documents, confirmation from customers or suppliers, physical verification, or full IFC testing. SRE 2400 explicitly does not require these.

What CFOs do anyway

Most listed CFOs prepare for quarterly reviews as if they were full audits. They prepare the same schedules — receivables aging, revenue reconciliations, accrual analyses, related-party transaction lists — that they would prepare for year-end. They expect questions on revenue recognition policy, on inventory provisioning, on contingent liabilities. They put together a quarterly review pack that is materially similar in content to the year-end audit pack, scaled down for the quarter.

The reasons are practical. The 45-day disclosure deadline does not allow time for re-work. If the auditor surfaces a question during the review, the CFO has a week or so to resolve it before disclosure. Better to anticipate. The auditor's procedures, even at the limited-assurance level, often touch the same areas as the year-end audit. Better to have the same schedules ready. The auditor's review is sometimes used as a pre-audit signal — issues that surface in the quarterly review get resolved before they become year-end audit issues.

The downside is cost and management time. A listed CFO spends roughly the same effort on each quarterly review as on the year-end audit per period basis. The audit firm's quarterly review fee is typically 25-35% of the annual audit fee for each of Q1, Q2, and Q3 — so the cumulative quarterly fees can equal or exceed the annual audit fee.

Going-concern in quarterly reviews

SRE 2400 does not require the formal going-concern evaluation that SA 570 requires at year-end. But the limited review still requires the auditor to inquire of management about events that may cast significant doubt on the entity's ability to continue. If the inquiry identifies such events, the auditor is required to perform additional procedures.

For companies in stressed sectors or in stressed cash positions, quarterly reviews surface going-concern conversations sooner than annual audits would. A listed company that misses two quarterly forecasts may face a material-uncertainty paragraph in the half-year review report before the year-end audit has even started. That kind of disclosure on the stock exchange has immediate market consequences.

The 30-day disclosure deadline for quarter-end

SEBI LODR Regulation 33 requires the financial results to be approved by the board of directors and submitted to the stock exchange within 45 days of the end of the quarter. The audit committee must recommend the results to the board first. The auditor's limited review report must accompany the financial results.

Working backward from the 45-day deadline: the audit committee meeting typically happens around day 35-40 after quarter-end. The board meeting happens immediately after. The auditor's review work has to be complete by the audit committee meeting. The schedules have to be ready for the auditor by day 20-25.

That leaves three weeks from quarter-close to having the auditor in. For companies with subsidiaries, the consolidation work compresses that window further. Sub-ledger close, intercompany reconciliation, currency translation, and elimination entries have to be done before the auditor can start.

Quarter four versus year-end

Indian listed companies have two reporting events at year-end. The Q4 results — which cover the full year on a consolidated basis — are disclosed within 60 days of year-end. The audited annual financial statements are produced separately and submitted with the AGM notice.

Most companies time these together. The Q4 results disclosure is based on the auditor's audit opinion on the annual financial statements. So the limited-review process at year-end is replaced by the full audit process. The timeline compresses — 60 days from year-end to disclosure means the audit firm is on-site within two weeks of close.

For the auditor, this means three quarterly reviews and one annual audit in a 12-month period for each listed client. The team capacity has to match. Audit firms with too many listed clients run into capacity issues at quarter-ends, particularly at Q4 when audits overlap.

Common issues that surface in quarterly reviews

Three categories recur.

Revenue recognition timing. Service revenues that should be recognized over time get booked at invoice point. Software license revenues that should be deferred get recognized upfront. The fix is straightforward once identified, but the quarter's revenue can change by 5-15% in some cases.

Provisions and contingencies. Estimates that have not been refreshed since the prior year-end. A litigation provision based on outdated counsel advice. An inventory provision that does not reflect current quarter's slow-moving stock. Auditors specifically ask whether estimates have been updated.

Subsequent events. Material events between quarter-end and the review date. A regulatory order, a customer loss, a major contract signed. Inclusion in the quarterly disclosure is required if the event is material and provides evidence of conditions existing at quarter-end.

What audit committees should ask in quarterly reviews

Three questions at each quarterly review.

What unusual transactions or accounting decisions occurred during the quarter? The CFO and the auditor should both be asked. Consistency between their answers is informative.

Have any subsequent events occurred that may affect the financial results? This question should be asked specifically each quarter. Subsequent events that should have been disclosed but were not are the most common SEBI enforcement category.

Are there any matters the auditor would like to bring to the audit committee's attention? SRE 2400 requires the auditor to communicate significant matters arising during the review. The audit committee's explicit invitation to do so creates the space for the conversation.

Quarterly limited reviews are not audits, but they are not nothing either. The companies that treat them as a structured engagement with the auditor — with proper schedules, proactive disclosure of issues, and clear inquiry-response discipline — find that the year-end audit is shorter, smoother, and less disruptive. The ones that treat each quarter as a fire drill find that the fire drill is the work.