Standards: AU-C 725, AU-C 730, AU-C 720 (AICPA); PCAOB AS 2701, AS 2705.
A lender asks whether the auditor stands behind the consolidating schedule bound after the audited statements. The auditor determines the applicable scope, performs the required procedures and reports the resulting responsibility for the schedule.
To identify the factors an auditor should consider when reporting, the auditor first classifies the information accompanying an entity's financial statements. The auditing standards for nonissuers recognize three categories, and each carries its own procedures and its own report language.
- Supplementary information (SI): information presented outside the basic financial statements that is not necessary for fair presentation, whether management chose to present it or a regulator asked for it.
- Required supplementary information (RSI): information a designated accounting standard-setter requires to accompany the basic statements, such as pension schedules required by the Governmental Accounting Standards Board (GASB) or reserve data...
- Other information: financial and nonfinancial information, other than the statements and the auditor's report, included in an annual report.
Common mistakes
- Nonissuer prohibition imported into issuer reporting. A nonissuer adverse opinion or disclaimer precludes an SI opinion; PCAOB supplemental-information reporting permits adverse or disclaimer conclusions as appropriate.
- Opinion modified for omitted RSI. Omitted or deficient required supplementary information changes the Required Supplementary Information section, never the opinion on the basic statements.
- Assurance read into limited procedures. The default RSI procedures support no opinion and no assurance. A separate engagement to express an opinion requires the additional work and applicable engagement conditions.
Bottom line
- Classify basic statements and notes first, then apply RSI, SI engagement and other-information scope rules; the requiring party alone is insufficient.
- Four conditions to opine on supplementary information: derived from the audited records, same period, audited by the group auditor with no adverse or disclaimed opinion, and presented with or readily available beside the audited statements.
- Management acknowledges responsibility, fair presentation, unchanged methods, significant assumptions, inclusion of the auditor's report, and presentation with the statements.
- The supplementary information opinion reads fairly stated, in all material respects, in relation to the financial statements as a whole, using the statements' materiality.
Exam shortcut
Classify the information under the applicable scope rules, then determine the engagement and procedures. Distinguish a basic-statement departure from a schedule-only misstatement. Keep the nonissuer adverse-or-disclaimer prohibition separate from PCAOB treatment. Default RSI receives limited procedures and no assurance; omission changes RSI reporting without modifying the basic-statement opinion. Date an SI report only after the supporting work is complete and never before the financial statement report date.
The full lesson (about 4,264 words, 28 min read) adds 3 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- IV.E4
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