Hot file review or hot review is conducted usually conducted during the audit and/or audit work is completed but before the auditor‟s report is issued. This in nature is a detailed review that is conducted with an aim to find out if there is any weakness in application of audit procedures or if the results have been misinterpreted. Hot reviews are usually carried out usually the senior the audit team or someone with the same authority who is not connected with the engagement. Such reviews mostly include meetings with audit team personnel and their individual work so that both work and the skills of members are improved pointing out discrepancies and providing recommendations.
The purpose of a hot review is to identify any key areas that need to be addressed prior to signing the report. The categories for review which may be undertaken can be described as follows:
i. Comfort reviews
ii. High risk reviews
iii. Training reviews
iv. Independence reviews
v. NSQC reviews
To summarize, hot review is conducted during the audit work is conducted but before the auditor‟s report is issued with a prime objective to ensure compliance with relevant auditing standards and achieving engagement‟s objectives
Cold file review or cold review is an objective evaluation on the date of auditor‟s report and is performed the auditor i.e. partner himself when all the audit work has been concluded and the required sufficient appropriate audit evidence has been obtained and conclusions drawn and reported. This review usually takes place when the auditor‟s report is signed off. The purpose of this review is to ensure compliance with relevant auditing standards and to analyze weaknesses in the way whole audit work is conducted and how it can be improved for next similar assignments updating firm‟s quality control standards, training the staff etc.
Normally the cold file review would aim to:
Identify whether the disclosure requirements had been properly met – incorrect disclosures are the largest subject of complaints to the Institute.
Identify whether the Auditing Standards and Regulations have been properly complied with – each audit would be “scored” using a comprehensive file review checklist.
Assess the effectiveness of any independent manager review and the partner review, looking for any points that should have been picked up a manager but had not been, and likewise with the partner.
To summarize, cold review is conducted with a view to check for the weaknesses in the firm‟s quality control procedures and system, proficiency of audit team members and how they can be improved to make later audit assignment more effective and efficient.