Audit: M11 - Other Information and Supplementary Information

When is an explanatory paragraph required for required supplementary information under PCAOB standards?

The explanatory paragraph is only required if: (1) Required info is omitted (2) Material departures exist. (3) Auditor cannot complete prescribed procedures (4) Unresolved doubts exist

Is an auditor required to audit required supplementary information?

No dood, but they can be engaged to audit the required supplementary information.

Should an auditor consider subsequent events with respect to supplementary information?

No. An auditor has *no responsibility* to consider subsequent events with respect to supplementary information.

What additional audit procedures must be performed by the auditor?

The following procedures must be performed using the same materiality level as the financials statement audit: (1) Inquire of management the purpose of the supplementary info. (2) Determine whether the form and content of the information complies with the applicable criteria. (3) Understand the methods used to prepare the info. (4) Compare and reconcile the info to the audited financial statements and underlying accounting records. (5) Inquire regarding any significant assumptions underlying the preparation & presentation of the info. (6) Evaluate the appropriateness and completeness of the info. (7) *Obtain written representations from management regarding the information*.

Supplementary Information

Info presented outside the basic financial statements that may be presented in a document containing the audited financial statements or separate from the financial statements.

What procedures are performed on *required* supplementary information?

(1) *Inquire of management* about the methods used to prepare the required supplementary info. (2) Determine if the supplementary info is *consistent with management's responses*. (3) *Obtain written management representations* regarding the required supplementary info.

If management refuses to make revisions for a material inconsistency on Other Information what is the proper course of action?

(1) Communicate matter with those judged with governance of the entity (2) Include an other-matter paragraph/explanatory paragraph describing the material inconsistency (3) Withhold the use of the report (4) Withdraw from the engagement

What is the proper procedure for dealing with Material Misstatements of Fact on other information?

(1) Discuss matter with management (2) If management refuses to take corrective action, auditor should request management consult with qualified 3rd party. (3) If management continues to refuse auditor should notify those charged with governance.

Additional requirements for audit procedures under PCAOB standards for Supplemental Information (Issuers)

(1) Evaluate the appropriateness of methods used to prepare the supplemental information. (2) Determine whether the supplemental info reconciles to the underlying accounting and other records or to the financial statements. (3) Use the same materiality considerations as those used in planning and performing the audit of the financial statements, unless a lower materiality level is specified by a regulatory requirement.

Additional requirements for evaluation of audit results for supplementary information under PCAOB standards (Issuers)

(1) Evaluate whether the supplemental info is fairly stated in relations to the financial statements as a whole. (2) Accumulate misstatements on the supplemental info and communicate them to management. (3) Evaluate whether uncorrected misstatements are material, either individually or in combination with other misstatements.

How can an issuer present the auditor's report on supplementary information?

(1) Explanatory Paragraph (2) Separate Report on the Supplemental Information

What are the conditions for reporting on whether supplementary information is fairly stated in all material respects to the financial statements as a whole?

(1) Info is *derived from* or directly to the info used to prepare the financial statements. (2) Info relates to *same period* as the financials. (3) The financials were audited and the *auditor issued an auditor's report*. (4) *Neither an adverse or disclaimer of opinion* was issued on the financials. (5) The supplementary info will *accompany the audited financial statements* or the audited financials will be made readily available.

If the supplementary information is materially misstated in relation to the financial statements as a whole and management refuses to revise the information, what should the auditor do (non-issuer)?

(1) Modify the opinion on the supplementary information (qualified or adverse) and describe the misstatement. (2) Withhold the report, if a separate report is being issued.

What does Other Information not include?

(1) Press Releases (2) Cover letters accompanying the document containing the audited financials (3) Info on analyst briefings (4) Info on the entity's website

What should be included in a separate report on supplementary information for a non-issuer?

(1) Reference to the report on the financial statements. (2) Date of that report. (3) Nature of the opinion on the financial statements. (4) Any report modifications.

Examples of Other Information

(1) Report by management/those charged with governance on operations (2) Financial summaries or highlights (3) Employment data (4) Planned capital expenditures (5) Financial Ratios (6) Names of officers and directors (7) Selected quarterly data

Objectives of Supplementary Information Engagement

(1) To evaluate the presentation of the supplementary information. (2) Report on whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole.

How can a non-issuer present the auditor's report on supplementary information?

A non-issuer can present an auditor's report on supplementary information as either an *other-matter paragraph* or *in a separate report*.

Auditor's Responsibility for Other Information

Generally, an auditor is *not responsible* for determining whether other information is properly stated. However, the auditor *should* read the information because the credibility of the audited financials may be undermined if there are material inconsistencies.

What should be reported on the Other-Matter paragraph for required supplementary information?

Report on deficiencies and omissions. See page A1-83 for full list.

If an auditor expresses an *adverse or disclaimer of opinion* on the financial statements and the auditor has been engaged to report on supplementary information, what are the effects on the opinion of supplemental information?

The auditor is *prohibited from expressing an opinion* on the supplementary information.

If an auditor expresses a *qualified opinion* on the financial statements and the basis for qualification also applies to supplemental information, what are the effects on the opinion of supplemental information?

The auditor should describe the effects of the qualification on the supplemental information and *should express a qualified opinion on the supplemental information*.

What should an auditor do if material inconsistency between the audited financials and other information exists?

The auditor should determine whether the audited financials or the other information needs to be revised.

If management refuses to make revisions for a material inconsistency on the audited financials what is the proper course of action?

The auditor should modify the audit opinion or withdraw.

What should be the report date on the auditor's report on supplemental information?

The report date should be *no earlier* than: (1) Date of the auditor's report on the financial statements from which the supplemental info was derived. (2) Date on which the auditor obtained sufficient appropriate audit evidence to support the auditor's opinion on the supplemental info.

When should an auditor withdraw from an engagement?

When information is *false, fraudulent, deceptive, or misleading.*

If management declines to present supplementary information required by GASB, the auditor should issue...

an Unmodified Opinion with an other-matter paragraph.