Audit reporting and other information

What is the other information? Auditor`s responsibilities relating to other information.

Other information is financial or non-financial information (other than financial statements and the auditor’s report thereon) included in an entity’s annual report.

Annual report is a document, or combination of documents, prepared typically on an annual basis by management or those charged with governance in accordance with law, regulation or custom, the purpose of which is to provide owners (or similar stakeholders) with information on the entity’s operations and the entity’s financial results and financial position as set out in the financial statements.

An annual report includes information about the entity’s developments, its future outlook and risks and uncertainties, a statement by the entity’s governing body, and reports covering governance matters.

The auditor is required to read and consider the other information because other information that is materially inconsistent with the financial statements or the auditor’s knowledge obtained in the audit may indicate that there is a material misstatement of the financial statements or that a material misstatement of the other information exists, either of which may undermine the credibility of the financial statements and the auditor’s report.

Examples of amounts or other items that may be included in the other information.

The following are examples of amounts and other items that may be included in other information. This list is not complete.

Amounts

·   Items in a summary of key financial results, such as net income, earnings per share, dividends, sales and other operating revenues, and purchases and operating expenses.

·   Selected operating data, such as income from continuing operations by major operating area, or sales by geographical segment or product line.

·   Special items, such as asset dispositions, litigation provisions, asset impairments, tax adjustments, environmental remediation provisions, and restructuring and reorganization expenses.

·    Liquidity and capital resource information, such as cash, cash equivalents and marketable securities; dividends; and debt, capital lease and minority interest obligations.

·    Capital expenditures by segment or division.

·    Amounts involved in, and related financial effects of, off-balance sheet arrangements.

·  Amounts involved in guarantees, contractual obligations, legal or environmental claims, and other contingencies.

·   Financial measures or ratios, such as gross margin, return on average capital employed, return on average shareholders’ equity, current ratio, interest coverage ratio and debt ratio. Some of these may be directly reconcilable to the financial statements.

Other Items

• Explanations of critical accounting estimates and related assumptions.

• Identification of related parties and descriptions of transactions with them.

• Articulation of the entity’s policies or approach to manage commodity, foreign exchange or interest rate risks, such as through the use of forward contracts, interest rate swaps, or other financial instruments.

•  Descriptions of the nature of off-balance sheet arrangements.

• Descriptions of guarantees, indemnifications, contractual obligations, litigation or environmental liability cases, and other contingencies, including management’s qualitative assessments of the entity’s related exposures.

• Descriptions of changes in legal or regulatory requirements, such as new tax or environmental regulations, that have materially impacted the entity’s operations or fiscal position or will have a material impact on the entity’s future financial prospects.

• Management’s qualitative assessments of the impacts of new financial reporting standards that have come into effect during the period, or will come into effect in the following period, on the entity’s financial results, financial position and cash flows.

• General descriptions of the business environment and outlook.

• Overview of strategy.

 • Descriptions of trends in market prices of key commodities or raw materials.

• Contrasts of supply, demand and regulatory circumstances between geographic regions.

• Explanations of specific factors influencing the entity’s profitability in specific segments.

 Material misstatements or material inconsistency related to other information (annual report)

The following situations connected with material misstatements or material inconsistency related to other information may be distinguished:

(a)    A material misstatement of the other information.

(b)   A material misstatement of the financial statements; or

(c)    The auditor’s understanding of the entity and its environment needs to be updated.

Auditor’s procedures when the auditor concludes that a material misstatement of the other information exists.

If the auditor concludes that a material misstatement of the other information exists, the auditor shall request management to correct the other information.

If management:

(a) Agrees to make the correction, the auditor shall determine that the correction has been made; or  

(b) Refuses to make the correction, the auditor shall communicate the matter with those charged with governance and request that the correction be made.

If the other information is not corrected after communicating with those charged with governance, the auditor shall take appropriate action, including.

(a)  Considering the implications for the auditor’s report and communicating with those charged with governance about how the auditor plans to address the material misstatement in the auditor’s report or

(b)  Withdrawing from the engagement, where withdrawal is possible under applicable law or regulation.

Auditor’s procedures when the auditor concludes that a material misstatement in the financial statements exists, or the auditor’s understanding of the entity and Its environment needs to be updated.

If the auditor concludes that a material misstatement in the financial statements exists or the auditor’s understanding of the entity and its environment needs to be updated, the auditor may become aware of new information that has implications for:

• The auditor’s understanding of the entity and its environment, the financial reporting framework and the entity’s system of internal control and, accordingly, may indicate the need to revise the auditor’s risk assessment.

• The auditor’s responsibility to evaluate the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements.

• The auditor’s responsibilities relating to subsequent events.

 Audit reporting requirements in relation to “Other information”

The auditor’s report shall include a separate section with a heading “Other Information”, or other appropriate heading, when, at the date of the auditor’s report:

(a)   For an audit of financial statements of a listed entity, the auditor has obtained, or expects to obtain, the other information; or

(b)  For an audit of financial statements of an entity other than a listed entity, the auditor has obtained some or all of the other information.

 A section with a heading “Other Information” includes following matters:

•  A statement that management is responsible for the other information.
• An identification of other information,
•  A statement that the auditor’s opinion does not cover the other information.
•  A description of the auditor’s responsibilities relating to other information.
• A statement that the auditor has nothing to report; or if the auditor has concluded that there is an uncorrected material misstatement of the other information, a statement that describes the uncorrected material misstatement of the other information

Example of the "Other information" section in the audit report