ISA 720 - The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements

Question 1

ISA 720: Other Information:

Answer 1

Other Information:
Examples:
> Financial Position
> Operations
> Financial results like Profit or Loss
> Other Financial Data
> Non Financial Data
> Payroll
> Future risk
> Projected Cash inflow.
> Key Ratios
All the above can be part of the Annual Report.

Annual Report:
» Financial Statements
» Auditor’s Report

Financial Statements and Audit Report:
Other information.

ISA 200: Primary responsibility of the Auditor is to give Opinion on the Financial Statements.

Auditor’s Responsibility in relation to the Other Information:
Objective of ISA 720:
» Check whether there is any material Inconsistency between FS and OI - Other Information.
» Check whether there is any material Inconsistency between the OI - Other Information and the knowledge obtained by Auditor during the Audit.
» Responding to the Inconsistency.
» How is the Reporting going to be done w.r.t OI - Other Information.

Auditor has to obtain Other Information:
» Conduct meeting with management and ask about the documents that are going to be included, planned manner and date of issue of the report etc.
» Make all possible arrangements that these Data or these Documents are made available to the Auditor on timely basis.
» Sometimes it is not possible to provide the final draft of the Annual Report by the Management before the date of the Audit Report, then obtain written representation by management.

Is there any material Inconsistency between FS and OI - Other Information?
Eg if the Revenue that is in the FS is different from what is stated in the OI- Other Information paragraph, then there is a mismatch and the Auditor must raise alarm.
> Is there any material Inconsistency between OI - Other Information and Auditor’s knowledge?

The Inconsistency between FS and OI highlights two things:
» That there could be material Misstatement in the FS, or
» There could be Information Misstatement in the OI.
» Or there could be that the Auditor’s knowledge which he obtained during the course of the Audit is wrong?

Suppose you conclude that there is Misstatement in FS and OI is correct, then ISA 720 will not help you because the Procedure is not given in that Standard.

> If the knowledge the Auditor acquired during his time of the Audit is wrong,
* Then the Auditor will need to re assess his knowledge properly.

Suppose Other Information is materially misstated?
> Request the management to do Rectification.
> If management refuses to make the required corrections, Communicate with TCWG.
> If TCWG also disagree, check whether how the Audit Report is going to change. If possible, withdraw from the Engagement.
> If the Auditor got other information after the date of Audit Report and that Other Information is wrong: refer to ISA 560.
* Communicate to the Management and TCWG if required.
* Take all necessary steps.

Other Information- OI section in the Auditor’s Report comes only if the Auditor come across the Other Information.

In case of Listed Companies, the Auditor needs to include this section if the Auditor obtained the Other Information before the date of Audit Report or you are expected to obtain the Other Information at a later date.

In the case of Unlisted Entities, the Auditor needs to include this section only if the Auditor obtained the other information before the date of Audit Report.

Content of Other Information:
> clearly state that, Management is responsible for Other Information.
> Identification of Other Information, in case of Listed Entities also give the expected identification of OI - Other Information.
> Auditor’s Opinion does not include Other Information, your Opinion is only on the FS.
> Description of Auditor’s Responsibility in connection to Other Information.

Finally, If there is no Inconsistency w.r.t the OI - Other Information, the Auditor needs to tell that we have nothing to report about the Other Information- OI.

Other Information inclusion is also governed by Law and Regulation.
> Identification of Other Information- OI.
> Description of responsibility of Auditor.
> Result of the Audit being conducted in connection with Other Information- OI.

Documentation:
» Document all the Audit Procedures performed.
» Also give the final version of OI - Other Information.

With this, we have successfully covered ISA 720: OI - Other Information.