The audited statements show revenue up 11.5 percent. Three pages earlier, the chairman's letter says 18 percent. The auditor reads the letter and investigates the apparent inconsistency without extending the audit opinion to the letter.
Other information is financial or nonfinancial information, other than the financial statements and the auditor's report, included in an entity's annual report: the document, or set of documents, that management or those charged with governance prepare, usually yearly, to tell owners about operations, results and financial position.
Typical contents of an annual report:
- A chairman's letter or a report from management on the year.
- Management's discussion and analysis (MD&A) in an annual report to shareholders.
- Financial highlights, five-year summaries, ratios and operating data such as headcount or units shipped.
- Governance and sustainability statements bound into the same document.
For nonissuers, documents outside the annual report, including securities offering documents and preliminary earnings announcements, are outside this annual-report standard and may be governed by separate requirements.
Common mistakes
- Assurance on the letter. The auditor reads and considers; no opinion or any form of assurance is expressed on other information, and the report says so even when the reading found nothing.
- Opinion modified for the letter. In Example 1 the trap answer is a qualified opinion over the 18 percent claim; the opinion moves only when the statements themselves are misstated.
- Skipping governance. Describing the misstatement in the report before those charged with governance have heard of it is out of order; communication comes first, then the report, withholding or withdrawal.
Bottom line
- Other information: financial or nonfinancial information in the annual report other than the statements and the auditor's report; the auditor reads and considers it and gives no opinion or assurance on it.
- Two findings: material inconsistency with the statements or the audit's knowledge, and material misstatement of fact in claims unrelated to the statements.
- Statements wrong: management refuses, the opinion is modified; qualified if material but not pervasive, adverse if pervasive.
- Other information wrong (nonissuer): communicate with those charged with governance, then describe the uncorrected material misstatement in the Other Information section, withhold the report, or withdraw.
Exam shortcut
Identify the document, governing regime and timing before selecting a response. Discuss an apparent discrepancy before treating it as a confirmed misstatement. Determine whether the statements, other information or auditor's understanding needs correction. An audit committee can exist under either regime; use the stated standards to choose the report form. Reading other information supplies no assurance, and late receipt does not remove the duty to respond.
The full lesson (about 4,413 words, 29 min read) adds 3 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- IV.E2
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