SA 720 – The Auditor’s Responsibilities Relating to Other Information

Question 1

LMP Associates, Chartered Accountants, conducting the audit of PQR Ltd., a listed
Company for the year ended 31st March 2019 is concerned with the auditor’s
responsibilities relating to other information, both financial and non-financial, included in
the Company’s annual report. While reading other information, LMP Associates considers
whether there is a material inconsistency between other information and the financial
statements. As a basis for the consideration the auditor shall evaluate their consistency,
compare selected amounts or other items in the other information with such amounts or
other items in the financial statements. Guide LMP Associates with examples of “Amounts”
or “other items” that may be included in the “other information” with reference to SA 720.

Answer 1

Examples of Amounts or Other Items that May Be Included in the Other Information:
As per SA 720 “The Auditor’s Responsibility in Relation to Other Information”, the
following are examples of amounts and other items that may be included in other
information. This list is not intended to be exhaustive.
Amounts
(i) 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.
(ii) Selected operating data, such as income from continuing operations by major
operating area, or sales by geographical segment or product line.
(iii) Special items, such as asset dispositions, litigation provisions, asset impairments, tax
adjustments, environmental remediation provisions, and restructuring and
reorganization expenses.
(iv) Liquidity and capital resource information, such as cash, cash equivalents and
marketable securities; dividends; and debt, capital lease and minority interest
obligations.
(v) Capital expenditures by segment or division.
(vi) Amounts involved in, and related financial effects of, off-balance sheet arrangements.
(vii) Amounts involved in guarantees, contractual obligations, legal or environmental
claims, and other contingencies.
(viii) 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
(i) Explanations of critical accounting estimates and related assumptions.
2. Identification of related parties and descriptions of transactions with them.
3. 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.
4Descriptions of the nature of off-balance sheet arrangements.
5Descriptions of guarantees, indemnifications, contractual obligations, litigation or
environmental liability cases, and other contingencies, including management’s
qualitative assessments of the entity’s related exposures.
6Descriptions 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.
7Management’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.
(viii) General descriptions of the business environment and outlook.
(ix) Overview of strategy.
(x) Descriptions of trends in market prices of key commodities or raw materials.
(xi) Contrasts of supply, demand and regulatory circumstances between geographic
regions.
(xii) Explanations of specific factors influencing the entity’s profitability in specific
segments.