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Enhanced focus on
other information in
auditor reporting
This article aims to:
–– Provide an overview of the reporting
requirements under SA 720 (Revised).

Introduction
In April 2015, the International on Auditing (SAs) 720 – SA
Auditing and Assurance 720 (Revised), The auditor’s
Standards Board (IAASB) issued responsibilities relating to other
revised International Auditing information. This SA deals with
Standard (ISA) 720, The Auditor’s the auditor’s responsibilities
Responsibilities Relating to Other relating to other information,
Information, in order to ensure whether financial or non-financial
that it continues to be capable information (other than financial
of enhancing the credibility of statements and the auditor’s
financial statements. The revised report thereon), included in an
standard became effective for entity’s annual report.
audits of financial statements
The following section aims
for periods ending on or after 15
to provide an overview of the
December 2016.
auditors’ responsibilities under
In line with international SA 720 (Revised) to report on
requirements, the Institute of other information included in an
Chartered Accountants of India entity’s annual report.
(ICAI) revised its Standards

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Meaning of other information Scope of SA 720 (Revised)


under SA 720 (Revised) The SA 720 (Revised) is written in the
SA 720 (Revised) defines other context of an audit of financial statements
information as financial or non-financial by an independent auditor. The auditor’s
information (other than financial opinion on the financial statements does
statements and the auditor’s report thereon) included not cover the other information, nor does
in an entity’s annual report. this SA require the auditor to obtain audit evidence
beyond that required to form an opinion on the
Annual reports include a lot of qualitative and financial statements.
quantitative information. The information provided
by annual reports is used by users of the financial The SA 720 (Revised) requires an auditor to read
statements to analyse the risk associated with and consider the other information to ascertain the
business and in decision making. cases where:

Depending on the applicable law, regulation or custom, • There is a material inconsistency between the other
one or more of the following documents may form part information and the financial statements
of the annual report: • There is a material inconsistency between the other
• Management report, management commentary, information and the auditor’s knowledge obtained in
or operating and financial review or similar reports the audit.
by those charged with governance (for example, a The material inconsistency identified by the auditor
directors’ report) may indicate that there is a material misstatement of
• Chairman’s statement the financial statements or of the other information,
either of which may undermine the credibility of the
• Corporate governance statement/reports. financial statements and the auditor’s report thereon.
Following are not other information within the scope of Such material misstatements may also inappropriately
this SA: influence the economic decisions of the users for
whom the auditor’s report is prepared.
• Separate industry or regulatory reports (for example,
capital adequacy reports), may be prepared in the The SA 720 (Revised) would also assist the auditor
banking, insurance, and pension industries in complying with relevant ethical requirements and
to avoid association with information that the auditor
• Corporate social responsibility reports believes contains a materially false or misleading
• Sustainability reports statement.
• Diversity and equal opportunity reports In some cases, the applicable financial reporting
framework may require specific disclosures but permit
• Product responsibility reports
them to be located outside of the financial statements.
• Labour practices and working conditions reports As such disclosures are required by the applicable
financial reporting framework, they form part of the
• Human rights reports
financial statements. Accordingly, they do not constitute
• Other regulatory filings with the government other information for the purpose of this SA. For
agencies such as the Registrar of Companies. example, certain disclosures required by Ind AS 107,
Financial Instruments: Disclosures.
The SA 720 (Revised) also does not apply to preliminary
Objective of SA 720 (Revised) announcements of financial information or securities
offering documents, including prospectuses.
The SA 720 (Revised) increases the
responsibility of the auditor relating
to other information in enhancing the Applicability
reliability of financial statements.
The revised standard on auditing is
The auditor’s responsibilities relating to other effective for audits of financial
information (other than applicable reporting statements for periods beginning
responsibilities) apply regardless of whether the on or after 1 April 2018.
other information is obtained by the auditor prior
to, or after, the date of the auditor’s report.

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19

Main changes in scope of the When the other information is obtained after the date
auditor’s work of the auditor’s report, the auditor is not required to
update the procedures performed in accordance with
The main changes brought by revised SA requirement of SA 560, Subsequent Event (paragraphs
720 (Revised) are: 6 and 7). However, the auditor would communicate with
• The revised SA 720 (Revised) management or those charged with governance about
broadened the scope of other information by linking it the possible implications when the other information is
to the concept of an annual report1 obtained after the date of the auditor’s report.

• Enhanced the auditor’s work effort with respect to


other information and
• Provided transparency by requiring reporting on the
auditor’s work relating to other information.
It is pertinent to note that the revised SA 720
(Revised) has retained the concept in extant SA 720
that other information is not required to be audited
(i.e., that auditors do not obtain assurance on the
other information).

Auditor’s role in respect to other


information
• The auditor would make appropriate
arrangements with the management of
a company to obtain other information
in a timely manner and if possible prior to the date of
the auditor’s report.
• The auditor should read the other information and
–– Consider whether there is a material inconsistency
between the other information and the financial
statements, and
–– Consider whether there is a material inconsistency
between the other information and the auditor’s
knowledge obtained in the audit, in the context of
audit evidence obtained and conclusions reached
in the audit.

• The auditor should remain alert for indications that


the other information not related to the financial
statements or the auditor’s knowledge obtained in
the audit appears to be materially misstated.
• The auditor should include in his/her audit
documentation the procedures performed and final
version of the other information on which auditor has
performed his/her procedures.

1. As per SA 720 (Revised), “an 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”.

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Reporting by auditors under SA Extract of the auditor’s report


720 (Revised) The following is an example2 of reporting when the
The auditor’s report would include a auditor has obtained all of the other information prior to
separate section with a heading ‘Other the date of the auditor’s report and has not identified a
Information’, or other appropriate heading, material misstatement of the other information.
when, at the date of the auditor’s report:
• For an audit of financial statements of a listed entity, Other Information [or another title if appropriate,
the auditor has obtained, or expects to obtain, the such as ‘Information Other than the Financial
other information, or Statements and Auditor’s Report Thereon’]
• For an audit of financial statements of an unlisted The company’s Board of Directors is responsible
corporate entity, the auditor has obtained some or all for the other information. The other information
of the other information. comprises the [information included in the X report,
In case of an audit of financial statements of an unlisted but does not include the financial statements and
corporate entity, the auditor may consider that the our auditor’s report thereon.]
identification in the auditor’s report of other information Our opinion on financial statements does not cover
that the auditor expects to obtain after the date of the the other information and we do not express any
auditor’s report would be appropriate in order to provide form of assurance conclusion thereon.
additional transparency about the other information that
In connection with our audit of the financial
is subject to the auditor’s responsibilities under SA 720
statements, our responsibility is to read the other
(Revised). The auditor may consider it appropriate to do
information and, in doing so, consider whether the
so, for example, when management is able to represent
other information is materially inconsistent with the
to the auditor that such other information would be
financial statements or our knowledge obtained
issued after the date of the auditor’s report.
in the audit or otherwise appears to be materially
Using the heading ‘other information’ or other misstated. If, based on the work we have performed,
appropriate heading, the auditor’s report will include: we conclude that there is a material misstatement
• A statement that management is responsible for the of this other information, we are required to report
other information. that fact. We have nothing to report in this regard.

• Identification of the other information obtained prior


to the date of the auditor’s report. In the case of
audit of a listed entity, the auditor is also required
to identify any other information expected to be
obtained after the date of the auditor’s report.
• A statement that the auditor’s opinion does not
cover the other information and, accordingly, that the
auditor does not express (or will not express) an audit
opinion or any form of assurance conclusion thereon.
• A description of the auditor’s responsibilities relating
to reading, considering and reporting on other
information as required by SA 720 (Revised).
• When other information has been obtained prior to
the date of the auditor’s report, either:
–– 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.

2. Illustration 1 provided in Appendix 1 of SA 720 (Revised)

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21

Auditor’s response in case if


material misstatement of the
other information exists
In case the auditor after reviewing the
other information concludes that material
misstatement of the other information exists, then
the auditor should request the management to correct
the other information and if required communicate the
matter to those charged with governance.
Guidance has been provided in the following situations:
Situation 1: If the auditor concludes that a material
misstatement exists in other information obtained
prior to the date of the auditor’s report, and the other
information is not corrected after communicating with
those charged with governance, the auditor should take
appropriate action, including:
• Reporting implications: The auditor should
consider implications for the auditor’s report and
communicating with those charge with governance
to consider the ways to address the material
misstatement in the auditor’s report such as a
disclaimer of opinion on the financial statements.
• Withdrawal from the engagement: The auditor
may consider withdrawing from the engagement,
where withdrawal is possible under applicable law or
regulation.
In cases where withdrawal is not possible, the
auditor may issue a report to the legislature
providing details of the matter or may take other
appropriate actions.

Situation 2: If the auditor concludes that a material


misstatement exists in other information obtained after
the date of the auditor’s report:
• If the material misstatement has been corrected:
The auditor should perform the additional procedures
ensure correction has been made and review the
steps taken by the management to communicate
with those in receipt of the other information.
• If the other information is not corrected: The auditor
should take appropriate action considering the
auditor’s legal rights and obligations, to seek to have
the uncorrected material misstatement appropriately
brought to the attention of users for whom the
auditor’s report is prepared.
If, as a result of performing the procedures mentioned
above, the auditor is of the opinion 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 would respond
appropriately in accordance with the other SAs.

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Consider this
• The revision of SA 720 aims to clarify and increase the
auditor’s involvement with other information – whether
financial or non-financial information other than audited
financial statements that is included in the entity’s
annual report.
• The auditors are not required to obtain assurance about
the other information.
• The auditor’s report will include a separate section on other
information when the auditor has obtained some or all of
the other information as of the date of the auditor’s report.
• For audits of financial statements of listed entities, ‘other
information’ section will also be included if the auditor
expects to obtain other information after the date of the
auditor’s report.

Sources:
• SA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information, issued by ICAI.
• IAASB’s publication, At a Glance, The International Standard on Auditing (ISA) 720 (Revised), The Auditor’s
Responsibilities Relating to Other Information, published in April 2015.

© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.