When supplementary information is presented with the financial statements, how does this affect the auditor’s report?
Background
1. In some circumstances, an entity may be required by law, regulation or standards, or may voluntarily choose, to present information, together with the audited financial statements, that is not required by the applicable financial reporting framework.
Such information is described in CAS 700, Forming an Opinion and Reporting on Financial Statements, as “supplementary information.”
2. Supplementary information may be presented to enhance a user’s understanding of the applicable financial reporting framework or to provide further explanation of specific financial statement items. Normally, supplementary information is presented in either supplementary schedules or as additional notes. - For example, the information could be presented in supplementary schedules disaggregating certain financial statement line items (such as a schedule describing the components of selling and administrative expenses) or in additional notes explaining the extent to which the financial statements comply with another financial reporting framework (such as a reconciliation to US GAAP).
3. This Q&A provides guidance to assist auditors when applying the requirements in paragraphs 46 and 47 of CAS 700 with respect to supplementary information. (See the Appendix to this Q&A for a decision tree that assists in understanding the implications of supplementary information on the auditor’s report.)
4. This Q&A does not address the circumstances when the auditor is specifically requested to conduct a separate engagement to report on supplementary information, whether or not presented with the financial statements — in this circumstance, the auditor will conduct the engagement in accordance with the appropriate CASs or Other Canadian Standards.
Information is not presented with the financial statements
5. When information is not presented with the audited financial statements, it is not supplementary information and is not
discussed in this Q&A. The auditor may need to refer to CAS 720, The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements, if the information meets the definition of “Other Information” in CAS 720.
The auditor may also need to refer to Section 7500, Auditor’s Consent to the Use of the Auditor’s Report in Connection with Designated Documents, if the information is contained in a designated document filed with securities regulatory authorities in connection with the entity’s financial statements, such as the Management Discussion and Analysis.
Information is required by the financial reporting framework 6 When information is presented with the audited financial
statements, the auditor needs to determine whether the
information is required by the financial reporting framework. If the information is required by the financial reporting framework, that information is not supplementary information, is subject to audit and is covered by the auditor’s report on the financial statements.
The auditor is requested to audit supplementary information as part of the audit of the financial statements
7. In some circumstances, law or regulation may require, or management may decide, that the supplementary information should be audited as part of the audit of the financial statements.
In this case, the auditor would plan the audit so that it is performed to obtain sufficient appropriate audit evidence about the
supplementary information.
8. In forming an opinion on the financial statements, the auditor would determine whether the financial statements identify the supplementary information as an integral part of the financial statements (for example, by placing the supplementary information proximate to the financial statements, by including cross-references from the financial statements to the supplementary information, or by including such supplementary information in the notes to the financial statements).
9. Paragraph A47 of CAS 700 states that supplementary information that is covered by the auditor’s opinion need not be specifically referred to in the introductory paragraph of the auditor’s report when the reference to the notes in the description of the statements that comprise the financial statements in the introductory paragraph is sufficient.
Unaudited supplementary information is not clearly differentiated from the financial statements
10. When unaudited supplementary information is presented with the audited financial statements, it is important that it is clearly differentiated from the financial statements so that readers do not construe the supplementary information as being covered by the auditor’s opinion. The auditor’s evaluation includes, for example, where that information is presented in relation to the financial statements and any audited supplementary information, and whether it is clearly labelled as “unaudited”.
11. Management could present the unaudited supplementary information so as to clearly differentiate it from the audited financial statements, as discussed in paragraph A50 of CAS 700, for example, by:
• removing any cross-references from the financial statements to unaudited supplementary schedules or unaudited notes so that the demarcation between the audited and unaudited information is sufficiently clear; and
• placing the unaudited supplementary information outside of the financial statements or, if that is not possible in the
circumstances, at a minimum placing the unaudited notes together at the end of the required notes to the financial statements and clearly labelling them as “unaudited.”.
12. Paragraph 47 of CAS 700 requires the auditor’s opinion to cover supplementary information that is not required by the applicable financial reporting framework but is nevertheless an integral part of the financial statements because it cannot be clearly differentiated from the audited financial statements due to its nature and how it is presented. Accordingly, the supplementary information must be audited.
Management changes how unaudited supplementary information is presented 13. When supplementary information can be, but is not, clearly
differentiated from the audited financial statements, paragraph 46 of CAS 700 requires the auditor to ask management to change how the unaudited supplementary information is presented.
14. If management clearly differentiates the supplementary information, there is no impact on the auditor’s report as the readers will not construe that the supplementary information is being covered by the auditor’s opinion.
Management refuses to change how unaudited supplementary information is presented
15. When supplementary information can be, but is not, clearly differentiated from the audited financial statements, as discussed in paragraph 13 of this Q&A, and management refuses to do so, the auditor is required to explain in the auditor’s report that such supplementary information has not been audited. Such an explanation would be made in an Other Matter paragraph in the auditor’s report.
Unaudited supplementary information
16. Paragraph A51 of CAS 700 states that the fact that supplementary information is unaudited does not relieve the auditor of the
responsibility to read the information to identify material inconsistencies with the audited financial statements. The
auditor’s responsibilities with respect to unaudited supplementary information are consistent with those described in CAS 720, The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements.
Is information presented with the financial statements?
(Para 46, CAS 700)
Not supplementary information.
CAS 700 does not apply
Is information required by the financial reporting framework?
(Para 46, CAS 700)
Is auditor requested to audit the information as part of the audit of
the financial statements?
If information is not clearly differentiated, can it be clearly differentiated from the financial statements? (Para 46, CAS 700)
Will management change how unaudited information is presented such that it is clearly differentiated?
(Para 46, CAS 700)
Explain in auditor's report that information has not been audited.
(Para 46, CAS 700)
Information is covered by auditor’s report on the
financial statements
Information is covered by auditor’s report on the
financial statements
Information is covered by auditor’s report on the financial
statements and must be audited (Para 47, CAS 700
No impact on auditor’s report if management changes how
unaudited information is presented
Yes
No
No
Yes
No
No
Yes
Yes
No
Yes APPENDIX
Decision tree to assist in understanding the implications of supplementary information on the auditor’s report