Other information in documents accompanying the accounts

The IAASB's proposals to revise ISA 720
"The Auditor's Responsibilities Relating to Other Information in Documents Containing or Accompanying Audited Financial Statements and the Auditor's Report Thereon" will extend the auditor's responsibilities to consider other accompanying information and presents challenges to the profession, in terms of balancing risk against the need to provide a useful assurance service.

The time is right to consider this accompanying information, because of the increased use of the internet as a tool for publishing financial information and reliance by investors on reports from analysts.  The number of shareholders who rely directly and exclusively on the statutory financial report for their information about their investment would be very small.

Westworth Kemp's submission on the proposals suggests that whilst the proposed ISA seeks to define a process that does not, in audit parlance, give assurance, or at least assurance comparable to an audit or review, the general reader is likely to see any form of report as giving them comfort that the matter upon which the auditor is commenting is suitable for their (the general reader’s) use.  This is the essence of the expectation gap.  Care must be taken not to widen that expectation gap, especially when a discrepancy between other information and the audited financial statements may be a matter of tone rather than hard facts.

This is not, however, a reason for not providing the proposed forms of report.

Effective management of the risk implicit in the giving of the proposed report requires careful consideration by the auditor. Whilst the provision in the standard of steps that can be taken when dealing with the other information may provide the auditor with some protection, ultimately the review of other information under the proposed ISA 720 would have to be undertaken by senior audit executives. Inherent in the work is the exercise of judgement and understanding of the client, which cannot be delegated to junior staff.