AU 551: Supplementary Information in Relation to the Financial Statements as a Whole
AU-C 725: Supplementary Information in Relation to Financial Statements as a Whole
EFFECTIVE DATE AND APPLICABILITY
| Original Pronouncements | Statement on Auditing Standards (SAS) 119. |
| Effective Date | This statement currently is effective. |
| Applicability | Audits of financial statements in accordance with generally accepted auditing standards (GAAS) if the statements and the auditor’s report on them are included in a document that the auditor submits to the client or others. |
EFFECTIVE DATE AND APPLICABILITY
To address practice issues, SAS No. 119, Supplementary Information in Relation to the Financial Statements as a Whole, was one of the clarified standards issued before SAS No. 122. It was issued in February 2010 and is effective for audits of financial statements for periods beginning on or after December 15, 2010.
SAS No. 119 was codified in AU 551 when issued, but was moved to AU-C 725 with the issuance of SAS No. 122. Some conforming changes were made in specific paragraphs and footnotes due to the issuance of SAS No. 122, but no substantive changes were made.
AU DEFINITION OF TERM
Supplementary information. Information presented outside the basic financial statements, excluding required supplementary information that is not considered necessary for the financial statements to be fairly presented in accordance with the applicable financial reporting framework. Examples of supplementary information are consolidating information, historical summaries of items extracted from the basic financial statements, and statistical data.
AU-C DEFINITION OF TERM
Source: AU-C 725.04
Supplementary information. Information presented outside the basic financial statements, excluding required supplementary information that is not considered necessary for the financial statements to be fairly presented in accordance with the applicable financial reporting framework. Such information may be presented in a document containing the audited financial statements or separate from the financial statements.
OBJECTIVES OF AU SECTION 551
An auditor may be engaged to report on whether information that is supplemental to the financial statements is fairly stated, in all material respects, in relation to the financial statements as a whole. When the auditor takes on this task, the objective is to both evaluate the presentation of the supplementary material in relation to the financial statements, and to report on whether such information is fairly stated, in all material respects, in relation to the financial statements as a whole.
OBJECTIVE OF AU-C SECTION 725
AU-C 725.03 states that:
the objective of the auditor, when engaged to report on supplementary information in relation to the financial statements as a whole, is to
a. evaluate the presentation of the supplementary information in relation to the financial statements as a whole and
b. report on whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole.
FUNDAMENTAL REQUIREMENTS
An auditor should determine that all of the following conditions are met in order to determine whether supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole:
- Source material. The supplementary information was derived from the accounting records used to prepare the financial statements.
- Period. The supplementary information encompasses the same period as the financial statements.
- Auditor. The auditor was the principal auditor of the financial statements, which were audited.
- Opinion type. Neither an adverse opinion nor a disclaimer of opinion was issued on the financial statements.
- Accompaniment. The supplementary information will accompany the audited financial statements, or the entity will make the audited financial statements available.
Further, management must acknowledge that it is responsible for the following:
- Supplementary information. The preparation of supplementary information.
- Representations. The following written representations:
- It acknowledges responsibility for presentation of the supplementary information.
- It believes the supplementary information is fairly presented.
- The measurement and presentation methods have not changed from those used in the prior period, or the reasons for such changes.
- Any significant assumptions or interpretations underlying the supplementary information.
- It will make the audited financial statements available whenever the supplementary information is not presented with those statements.
- Audit report inclusion. The inclusion of the auditor’s report on the supplementary information in any documents containing such information.
- Inclusion with financials. The inclusion of the supplementary information with the audited financial statements, or to make the financial statements available.
Finally, the auditor should perform the following procedures, using the same materiality level used in his or her audit of the financial statements:
1. Inquiries. Inquire about the purpose of the supplementary information and the criteria used to prepare it.
2. Form and content. Determine whether the form and content of the supplementary information complies with any applicable criteria.
3. Preparation methods. Gain an understanding of the methods used to prepare the supplementary information, whether these methods have changed from those used in previous periods, and if so, why the changes were made.
4. Reconciliation. Reconcile the supplementary information to the accounting records used to prepare the financial statements.
5. Assumptions. Make inquiries about significant assumptions used in the preparation of the supplementary information.
6. Appropriateness and completeness. Evaluate the appropriateness and completeness of the supplementary information.
When the entity includes the supplementary information with its financial statements, the auditor reports on this additional information either in an explanatory paragraph following the opinion paragraph, or in the separate report. The explanatory paragraph or separated report should include the following items:
1. State that the audit was conducted to form an opinion on the financial statements as a whole.
2. State that the supplementary information provides additional analysis and is not a required part of the financial statements.
3. State that management is responsible for the supplementary information, and that this information was derived from the accounting records used to prepare the financial statements.
4. State that the supplementary information has been subjected to the auditing procedures used in the financial statements audit, along with additional procedures, such as reconciling the information to the records used to prepare the financial statements, in accordance with GAAS.
5. If the opinion is unqualified and the supplementary information is fairly stated, then state that the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole.
6. If the opinion is qualified and that qualification affects the supplementary information, state that, in the auditor’s opinion, such information is fairly stated, in all material respects, in relation to the financial statements as a whole.
NOTE: If the financial statements are presented without the supplementary information, the auditor should report on the supplementary information in a separate report. When preparing this separated report, the report should include a reference to the report on the financial statements, the report’s date, and report modifications, and the nature of the opinion expressed therein.
Opinion on Supplementary Information
If the auditor issues an adverse opinion or a disclaimer of opinion on an entity’s financial statements, and the auditor has also been engaged to deliver an opinion on the supplementary information, he or she cannot express a separate opinion on the supplementary information. When permitted by law, the auditor can withdraw from the engagement to report on the supplementary information. If the auditor cannot withdraw, then the report on the supplementary information should state that, due to the significance of the matter disclosed in the auditor’s report, it is inappropriate to express an opinion on the supplementary information. If the auditor concludes that the supplementary information is misstated, then discuss the matter with management and propose appropriate revisions. If management does not revise the supplementary material accordingly, then either modify the auditor’s opinion on the supplementary information to describe the misstatements, or withhold the report.
AU-C INTERPRETATIONS
Dating the Auditor’s Report on Supplementary Information
The auditor’s report on supplementary information should not be dated earlier than the date on which the auditor completed the procedures required by AU-C Section 725. When the auditor completes those procedures subsequent to the date of the auditor’s report on the audited financial statements, the auditor is not required to obtain additional evidence with respect to the audited financial statements. When reporting on the supplementary information (either in a separate report or in an explanatory paragraph within the auditor’s report on the financial statements) after the date of the auditor’s report on the financial statements, an auditor may make it clear that no additional procedures were performed on the audited financial statements subsequent to the date of the auditor’s report on those financial statements.
Although not required, an auditor may
1. When issuing a separate report on the supplementary information, include in such report a statement that the auditor has not performed any auditing procedures with respect to the audited financial statements subsequent to the date of the auditor’s report on those audited financial statements, or
2. When reissuing a report on the audited financial statements to include an explanatory paragraph to report on the supplementary information, include two report dates to indicate that the date of reporting on the supplementary information is as of a later date.
AU ILLUSTRATIONS
The following are illustrative audit reports adapted from AU Section 551:
1. An explanatory paragraph where there is an unqualified opinion on the financial statements and the supplementary information is fairly stated.
2. An explanatory paragraph where there is a qualified opinion on the financial statements and a qualified opinion on the supplementary information.
3. An explanatory paragraph when disclaiming an opinion on the financial statements.
4. An explanatory paragraph when there is an adverse opinion on the financial statements.
5. An explanatory paragraph when reporting separately on supplementary information and there is an unqualified opinion on the financial statements and an unqualified opinion on the supplementary information.
6. An explanatory paragraph when reporting separately on supplementary information and there are qualified opinions on both the financial statements and supplementary information.
7. An explanatory paragraph when reporting separately on supplementary information and the auditor disclaims an opinion on the financial statements.
8. An explanatory paragraph when reporting separately on supplementary information and the auditor issues an adverse opinion on the financial statements.
Illustration 1. Explanatory Paragraph with Unqualified Opinion on Financial Statements and Supplementary Information Is Fairly Stated
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The [identify accompanying supplementary information] is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
Illustration 2. Explanatory Paragraph with a Qualified Opinion on Financial Statements and a Qualified Opinion on Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The [identify accompanying supplementary information] is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, except for the effect on the supplementary information of [describe reason for qualification of the auditor’s opinion on the financial statements and reference the explanatory paragraph], the information is fairly stated in all material respects in relation to the financial statements as a whole.
Illustration 3. Explanatory Paragraph when Disclaiming an Opinion on the Financial Statements
We were engaged for the purpose of forming an opinion on the basic financial statements as a whole. The [identify accompanying supplementary information] is presented for purposes of additional analysis and is not a required part of the financial statements. Because of the significance of the matter described above [may describe the basis for the disclaimer of opinion], it is inappropriate to and we do not express an opinion on the supplementary information referred to above.
Illustration 4. Explanatory Paragraph when Disclaiming an Opinion on the Financial Statements
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The [identify accompanying supplementary information] is presented for the purposes of additional analysis and is not a required part of the financial statements. Because of the significance of the matter described above [may describe the basis for the adverse opinion], it is inappropriate to and we do not express an opinion on supplementary information referred to above.
Illustration 5. Explanatory Paragraph when Reporting Separately for Supplementary Information, with Unqualified Opinions on Both the Financial Statements and Supplementary Information
We have audited the financial statements of ABC Company as of and for the year ended December 31, 20X1, and have issued our report thereon dated [date of the auditor’s report on the financial statements], which contained an unqualified opinion on those financial statements. Our audit was performed for the purpose of forming an opinion on the financial statement as a whole. The [identify supplementary information] is presented for the purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
Illustration 6. Explanatory Paragraph with Qualified Opinions on the Financial Statements and Supplementary Information
We have audited the financial statements of ABC Company as of and for the year ended December 31, 20X1, and have issued our report thereon dated [date of the auditor’s report on the financial statements, the nature of the opinion expressed on the financial statements, and a description of the report modifications], Our audit was performed for the purpose of forming an opinion on the financial statements as a whole. The [identify supplementary information] is presented for the purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, except for the effect on the accompanying information of the qualified opinion on the financial statements as described above, the information is fairly stated in all material respects in relation to the financial statements as a whole.
Illustration 7. Explanatory Paragraph with Disclaimer on the Financial Statements
We were engaged to audit the financial statements of ABC Company as of and for the year ended December 31, 20X1, and have issued our report thereon dated [date of the auditor’s report on the financial statements]. However, the scope of our audit of the financial statements was not sufficient to enable us to express an opinion because [describe reasons], and accordingly we did not express an opinion on such financial statements. The [identify the supplementary information] is presented for purposes of additional analysis and is not a required part of the basic financial statements. Because of the significance of the matter discussed above, it is inappropriate to and we do not express an opinion on the supplementary information referred to above.
Illustration 8. Explanatory Paragraph with Adverse Opinion on the Financial Statements
We were engaged to audit the financial statements of ABC Company as of and for the year ended December 31, 20X1, and have issued our report thereon dated [date of the auditor’s report on the financial statements] which stated that the financial statements are not presented fairly in accordance with [identify the applicable financial reporting framework, such as GAAP] because [describe reasons]. The [identify the supplementary information] is presented for purposes of additional analysis and is not a required part of the basic financial statements. Because of the significance of the matter discussed above, it is inappropriate to and we do not express an opinion on the supplementary information referred to above.
AU-C 725 ILLUSTRATIONS
The following are illustrations from AU-C 725:
1. An Other-Matter Paragraph When the Auditor Is Issuing an Unmodified Opinion on the Financial Statements and an Unmodified Opinion on the Supplementary Information
2. An Other-Matter Paragraph When the Auditor Is Issuing a Qualified Opinion on the Financial Statements and a Qualified Opinion on the Supplementary Information
3. An Other-Matter Paragraph When the Auditor Is Disclaiming an Opinion on the Financial Statements
4. An Other-Matter Paragraph When the Auditor Is Issuing an Adverse Opinion on the Financial Statements
5. A Separate Report When the Auditor Is Issuing an Unmodified Opinion on the Financial Statements and an Unmodified Opinion on the Supplementary Information
6. A Separate Report When the Auditor Is Issuing a Qualified Opinion on the Financial Statements and a Qualified Opinion on the Supplementary Information
7. A Separate Report When the Auditor Is Disclaiming an Opinion on the Financial Statements
8. A Separate Report When the Auditor Is Issuing an Adverse Opinion on the Financial Statements
Illustration 1. An Other-Matter Paragraph when the Auditor is Issuing an Unmodified Opinion on the Financial Statements and an Unmodified Opinion on the Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The [identify accompanying supplementary information] is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
Illustration 2. An Other-Matter Paragraph when the Auditor is Issuing a Qualified Opinion on the Financial Statements and a Qualified Opinion on the Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The [identify accompanying supplementary information] is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, except for the effect on the supplementary information of [describe reason for qualification of the auditor’s opinion on the financial statements and reference the other-matter paragraph], the information is fairly stated in all material respects in relation to the financial statements as a whole.
Illustration 3. An Other-Matter Paragraph when the Auditor is Disclaiming an Opinion on the Financial Statements
We were engaged for the purpose of forming an opinion on the basic financial statements as a whole. The [identify accompanying supplementary information] is presented for the purposes of additional analysis and is not a required part of the financial statements. Because of the significance of the matter described above [the auditor may describe the basis for the disclaimer of opinion], it is inappropriate to and we do not express an opinion on the supplementary information referred to above.
Illustration 4. An Other-Matter Paragraph when the Auditor is Issuing an Adverse Opinion on the Financial Statements
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The [identify accompanying supplementary information] is presented for the purposes of additional analysis and is not a required part of the financial statements. Because of the significance of the matter described above [the auditor may describe the basis for the adverse opinion], it is inappropriate to and we do not express an opinion on the supplementary information referred to above.
Illustration 5. A Separate Report when the Auditor is Issuing an Unmodified Opinion on the Financial Statements and an Unmodified Opinion on the Supplementary Information
We have audited the financial statements of XYZ Entity as of and for the year ended June 30, 20X1, and have issued our report thereon dated [date of the auditor’s report on the financial statements] which contained an unmodified opinion on those financial statements. Our audit was performed for the purpose of forming an opinion on the financial statements as a whole. The [identify supplementary information] is presented for the purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
Illustration 6. A Separate Report when the Auditor is Issuing a Qualified Opinion on the Financial Statements and a Qualified Opinion on the Supplementary Information
We have audited the financial statements of XYZ Entity as of and for the year ended June 30, 20X1, and have issued our report thereon dated [date of the auditor’s report on the financial statements, the nature of the opinion expressed on the financial statements, and a description of the report modifications]. Our audit was performed for the purpose of forming an opinion on the financial statements as a whole. The [identify supplementary information] is presented for the purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, except for the effect on the accompanying information of the qualified opinion on the financial statements as described above, the information is fairly stated in all material respects in relation to the financial statements as a whole.
Illustration 7. A Separate Report when the Auditor is Disclaiming an Opinion on the Financial Statements
We were engaged to audit the financial statements of XYZ Entity as of and for the year ended June 30, 20X1, and have issued our report thereon dated [date of the auditor’s report on the financial statements]. However, the scope of our audit of the financial statements was not sufficient to enable us to express an opinion because [describe reasons] and accordingly we did not express an opinion on such financial statements. The [identify the supplementary information] is presented for purposes of additional analysis and is not a required part of the basic financial statements. Because of the significance of the matter discussed above, it is inappropriate to and we do not express an opinion on the supplementary information referred to above.
Illustration 8. A Separate Report when the Auditor is Issuing an Adverse Opinion on the Financial Statements
We have audited the financial statements of XYZ Entity as of and for the year ended June 30, 20X1, and have issued our report thereon dated [date of the auditor’s report on the financial statements] which stated that the financial statements are not presented fairly in accordance with [identify the applicable financial reporting framework (for example, accounting principles generally accepted in the United States of America [GAAP])] because [describe reasons]. The [identify the supplementary information] is presented for purposes of additional analysis and is not a required part of the basic financial statements. Because of the significance of the matter discussed above, it is inappropriate to and we do not express an opinion on the supplementary information referred to above.
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