AU 552: Reporting on Condensed Financial Statements and Selected Financial Data
AU-C 810: Engagements to Report on Summary Financial Statements
AU EFFECTIVE DATE AND APPLICABILITY
| Original Pronouncements |
Statements on Auditing Standards (SASs) 42 and 71. |
| Effective Date |
These statements currently are effective. |
| Applicability |
Accountants’ reports: |
|
1. On condensed financial statements in a client-prepared document for an annual or interim period, derived from audited financial statements of a public entity that is required to file, at least annually, complete audited financial statements with a regulatory agency; or |
|
2. On selected financial data in a client-prepared document of a public or nonpublic entity, derived from audited financial statements that are presented in a document that includes audited financial statements, or that (if a public entity) incorporates such statements by reference. (See “AU Objectives of Section 552” and “Objectives of AU-C Section 810” for additional explanation of applicability.) |
AU-C EFFECTIVE DATE AND SUMMARY OF CHANGES
SAS No. 122, Codification of Auditing Standards and Procedures, is effective for audits of financial statements with periods ending on or after December 15, 2012.
The clarified SAS addresses the auditor’s responsibilities when reporting on summary financial statements derived from financial statements audited by that same auditor. Accordingly, an auditor cannot report on summary financial statements unless the auditor has audited the financial statements from which the summary financial statements are derived. According to the American Institute of Certified Public Accountants (AICPA) document, Summary of Differences Between Clarified SASs and Existing SASs, the clarified SAS also:
- Eliminates reporting on selected financial data.
- Introduces the notion of criteria for preparing summary financial statements and requires the auditor to determine whether the criteria applied by management in the preparation of the summary financial statements are acceptable.
- Requires the auditor to obtain management’s agreement that it acknowledges and understands its responsibilities for the summary financial statements, including its responsibility to make the audited financial statements readily available to the intended users of the summary financial statements. Being available upon request is not considered readily available.
- Stipulates specific procedures to be performed as the basis for the auditor’s opinion on the summary financial statements.
- Stipulates specific elements of the auditor’s report, including management’s responsibility and a description of the auditor’s procedures.
- Requires the auditor to request management to provide, in the form of a representation letter addressed to the auditor, written representations relating to the summary financial statements.
- Requires, when the auditor has concluded that an unmodified opinion on the summary financial statements is appropriate, the auditor’s opinion to state that the summary financial statements are consistent, in all material respects, with the audited financial statements from which they have been derived, in accordance with the applied criteria. SAS No. 42 required that the auditor’s opinion state whether the information set forth in the summary financial statements is fairly presented, in all material respects, in relation to the complete set of financial statements from which it has been derived.
- Requires, when the auditor’s report on the audited financial statements contains an adverse opinion or a disclaimer of opinion, the auditor to withdraw from the engagement when withdrawal is possible under applicable law or regulation. Otherwise, the auditor is required to state in the report that it is inappropriate to express, and the auditor does not express, an opinion on the summary financial statements.
- Clarifies the auditor’s responsibilities related to subsequent events and subsequently discovered facts when the date of the auditor’s report on the summary financial statements is later than the date of the auditor’s report on the audited financial statements.
- Includes specific requirements relating to comparatives, unaudited information presented with summary financial statements, and other information included in a document containing the summary financial statements and related auditor’s report.
- Addresses the auditor’s responsibilities as they relate to the auditor’s association with summary financial statements.
AU DEFINITIONS OF TERMS
Condensed financial statements. Financial statements presented in considerably less detail than complete financial statements that are intended to present financial position, results of operations, and cash flows in conformity with generally accepted accounting principles (GAAP).
NOTE: The section has no informative explanation of the extent of condensation permissible. Because GAAP does not specify the extent of detail necessary in complete financial statements, this is understandable. Usually in condensed statements many financial statement components are combined and notes are omitted. The required form of reporting was intended to avoid forcing the accountant to evaluate the extent of condensation.
Selected financial data. Selected components of financial statements (usually of prior periods) that management has determined should be presented. Under SEC regulations, for example, management has to present the following selected data for each of the last five fiscal years:
1. Net sales or operating revenue
2. Income or loss from continuing operations in total and per common share
3. Total assets
4. Long-term obligations and redeemable preferred stock
5. Cash dividends declared per common share
NOTE: In condensed financial statements all the components of financial statements are included, but many of them are combined. In selected financial data only specific components are presented.
Selected financial data includes specific components appearing in financial statements and data calculated from such components, such as working capital. It does not include nonfinancial information, such as number of employees.
AU-C DEFINITIONS OF TERMS
Source: AU-C 810.0
Applied criteria. The criteria applied by management in the preparation of the summary financial statements.
Summary financial statements. Historical financial information that is derived from financial statements but that contains less detail than the financial statements, while still providing a structured representation consistent with that provided by the financial statements of the entity’s economic resources or obligations at a point in time or the changes therein for a period of time. Summary financial statements are separately presented and are not presented as comparative information.
OBJECTIVES OF AU SECTION 552
The goal at the inception of the project that led to issuance of this section was to provide some guidance on accountants’ reports in SEC filings on some new kinds of required information so that there would be reasonable uniformity in practice. The more ambitious task of providing comprehensive guidance on reporting on condensed financial information was considered too complex and hence too time-consuming. By the time the section was in place, practice could be diverse, and less desirable practice might be entrenched. Protests during exposure about the narrow applicability of the proposed guidance forced a compromise of sorts. Through footnotes and cross-references to other literature, the section identifies the reporting guidance that applies to all forms of condensed financial statements.
Auditor-Submitted Documents
In an auditor-submitted document (see Section 551, Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents), condensed financial statements and selected financial data are treated no differently from any other information that might accompany the basic financial statements. Section 551 applies, and if the information has been subjected to sufficient auditing procedures, the auditor reports on whether it is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Usually the auditor will have audited the basic financial statements from which the condensed financial statements and selected financial data are derived and will be able to give this assurance.
Client-Prepared Documents: Public Entities
Here the reporting guidance differs for condensed financial statements versus selected data.
Condensed Financial Statements
The form of reporting in this section for condensed financial statements can be used only in a client-prepared document containing annual or interim condensed financial statements, derived from audited financial statements of a public entity that is required to file, at least annually, complete audited financial statements with a regulatory agency. The justification for permitting the specified assurance on condensed financial statements is the discipline of an annual filing requirement and the guaranteed public availability of information on an entity that this discipline provides. Note that the audited financial statements from which the condensed financial statements are derived do not actually have to be filed. For example, complete audited financial statements for an interim period might never be filed.
The form of reporting in the section cannot be used in client-prepared documents of all public entities (only those subject to a regulatory agency’s annual filing requirements). For public entities not subject to a filing requirement, there are two options. If the client-prepared document contains complete audited financial statements, the Section 551 form of report could be used. If the client-prepared document does not contain complete audited financial statements, an adverse opinion is required (see the discussion for nonpublic entities).
Selected Data
The section provides guidance on reporting on selected financial data in all client-prepared documents of public and nonpublic entities (see “Fundamental Requirements”).
Client-Prepared Documents: Nonpublic Entities
Selected financial data in a client-prepared document of a nonpublic entity are covered by the reporting guidance in this section. Condensed financial statements of such entities are not covered. This means the form of report described in this section cannot be issued on the condensed financial statements of a nonpublic entity. If the condensed financial statements are in a client-prepared document that contains audited financial statements, the Section 551 form of report could be used. If the condensed financial statements are in a client-prepared (or auditor-submitted) document that does not contain complete audited financial statements, there are two options:
1. An adverse opinion
2. A compilation report for statements that omit substantially all disclosures
Although the natural inclination may be to use a compilation report, the report illustrated in a footnote to the section (reproduced in the “Illustrations” section at the end of the chapter) has the following attractive features:
1. The first paragraph describes the fact that the complete financial statements from which the condensed financial statements are derived were audited.
2. The information omitted from the condensed financial statements does not need to be included in the report (an exemption from the usual requirements of an adverse opinion).
3. Although the opinion paragraph states that the condensed financial statements are not presented fairly in conformity with GAAP, this may be more acceptable to the client than the warning paragraph in a compilation report on the omission of substantially all disclosures.
OBJECTIVES OF AU-C SECTION 810
AU-C Section 810 states that:
. . . the objectives of the auditor are
a. to determine whether it is appropriate to accept the engagement to report on summary financial statements and,
b. if engaged to report on summary financial statements, to
i. perform the procedures necessary as the basis for the auditor’s opinion on the summary financial statements;
ii. form an opinion on whether the summary financial statements are consistent, in all material respects, with the audited financial statements from which they have been derived, in accordance with the applied criteria, based on an evaluation of the conclusions drawn from the evidence obtained; and
iii. express clearly that opinion through a written report that also describes the basis for that opinion.
FUNDAMENTAL REQUIREMENTS
Condensed Financial Statements
Form of Report
The auditor’s report on condensed financial statements that are derived from complete financial statements that he or she has audited should include:
1. A statement that the auditor has audited and expressed an opinion on the complete financial statements.
2. The date of the audit report on the complete financial statements.
3. The type of opinion issued.
4. Whether, in the auditor’s opinion, the information set forth in the condensed financial statements is fairly stated in all material respects in relation to the complete financial statements from which it has been derived.
NOTE: Several things should be noted about this requirement.
1. This form of report can be used only in a client-prepared document of a public entity subject to an annual filing requirement of a regulatory agency. Reporting is optional. The auditor may report at the client’s request, but see “Client Statements in Document,” which follows.
2. The report states that the information set forth in the condensed financial statements and not the condensed financial statements is fairly stated. This means that the report expresses no judgment on the extent of condensation.
3. An example of this form of report is given in “Illustrations.”
Client Statements in Document
In a client-prepared document, a client might name the auditor and state that condensed financial statements are derived from audited financial statements. By itself, this kind of client statement does not trigger a reporting requirement for the auditor if the document contains audited statements or incorporates them by reference to information filed with a regulatory agency. If audited complete financial statements are not in the document or incorporated by reference and the company is public and subject to an annual filing requirement, the auditor should ask the client either to:
1. Not include his or her name or
2. Include his or her report on the condensed financial statements
NOTE: Presumably, if the entity is not subject to an annual filing requirement, the only option is to ask not to be named or to express an adverse opinion on the condensed financial statements.
Comparative Presentation with Interim Information
Condensed financial statements might be presented in comparative form with interim information for a later period that has been reviewed. The auditor may append the report on the condensed financial statements to the review report. (An example combined report is presented in “Illustrations.”)
Marking Condensed Statements
It is desirable that the condensed financial statements be clearly marked as condensed.
NOTE: This is not a requirement.
Dating Report
A footnote in the section observes that reference to the date of the original audit report in the report on condensed financial statements removes any implication that records, events, or transactions after that date have been audited. Nothing else is mentioned about dating.
NOTE: Presumably, the report date for a separate report on condensed financial statements should be the date of the original audit report because that is when fieldwork was completed. A combined report on both a review of interim information and on condensed financial statements could be dated as of the completion of the review or might be dual-dated.
Selected Financial Data
Form of Report
The auditor’s report on selected financial data should specifically identify the data being reported on and include:
1. A statement that the auditor has audited and expressed an opinion on the complete financial statements
2. The type of opinion issued
3. Whether, in the auditor’s opinion, the information set forth in the selected financial data is fairly stated in all material respects in relation to the complete financial statements from which it has been derived
NOTE: Several things should be noted about this requirement.
1. This form of report may be used only in a client-prepared document (public or nonpublic entity) that contains audited financial statements or, for a public entity, that incorporates such statements by reference to information filed with a regulatory agency. Reporting on selected financial data is optional. The auditor may report at the client’s request, but there is no requirement to report. However, see “Client Statements in Document,” which follows.
2. The report states that the information set forth in the selected financial data and not the selected financial data is fairly stated. This means that the report expresses no judgment on the appropriateness of selection. However, if a regulatory agency has specified the selected financial data that have to be presented, the auditor should take exception to omission of the specified information.
3. Because the report on selected financial data is normally included as a paragraph in the standard report, dating is not an issue.
4. An example of this form of report is given in “Illustrations.”
Client Statements in Document
A client might name the auditor and state that selected data are derived from financial statements he or she audited. If the client-prepared document contains audited financial statements or incorporates them by reference to information filed with a regulatory agency, the auditor is not required to report on the selected financial data. If the document does not contain audited financial statements or incorporate them by reference, the auditor should:
1. Ask the client not to name or refer to him or her, or
2. Disclaim an opinion on the selected financial data and ask that the disclaimer be included.
NOTE: These requirements are more stringent than those for condensed financial statements. In effect, the auditor is not permitted to be associated, even if not named, with selected financial data unless audited financial statements are included in the document or incorporated by reference; a client may not even state that the selected financial data is derived from audited financial statements.
INTERPRETATIONS
There are no interpretations for this section.
AU ILLUSTRATIONS
The following reports adapted from AU Section 552 are illustrated:
1. A separate report on condensed financial statements
2. A combined report on reviewed and condensed financial statements
3. An adverse opinion on separately presented condensed financial statements
4. A standard report with a report on selected financial data
Illustration 1. Separate Report on Condensed Financial Statements (From AU 552.06)
To the Board of Directors
Widget Company
Main City, USA
Report of Independent Registered Public Accounting Firm
We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Widget Company and subsidiaries as of December 31, 20X5, and the related consolidated statements of income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated February 15, 20X6, we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived.
Smith and Jones
March 15, 20X6
Illustration 2. Combined Report on Reviewed and Condensed Financial Statements (From AU 552.08)
To the Board of Directors
Widget Company
Main City, USA
Report of Independent Registered Public Accounting Firm
We have reviewed the condensed consolidated balance sheet of Widget Company and subsidiaries as of March 31, 20X6, and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 20X6 and 20X5. These financial statements are the responsibility of the company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with US generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 20X5, and the related consolidated statements of income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated February 15, 20X6, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 20X5, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
Smith and Jones
April 15, 20X6
Illustration 3. Adverse Opinion on Separately Presented Condensed Financial Statements (From AU 552.07, footnote 6)
To the Board of Directors
Widget Company
Main City, USA
Independent Auditor’s Report
We have audited the consolidated balance sheet of Widget Company and subsidiaries as of December 31, 20X5, and the related earnings, and cash flows for the year then ended (not presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The condensed consolidated balance sheet as of December 31, 20X5, and the related condensed statements of income, retained earnings, and cash flows for the year then ended, presented on pages xx–xx, are presented as a summary and therefore do not include all of the disclosures required by accounting principles generally accepted in the United States of America.
In our opinion, because of the significance of the omission of the information referred to in the preceding paragraphs, the condensed consolidated financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of Widget Company and subsidiaries as of December 31, 20X5, or the results of its operations or its cash flows for the year then ended.
Smith and Jones
March 15, 20X6
Illustration 4. Standard Report with Report on Selected Financial Data (From AU 552.10)
To the Board of Directors
Widget Company
Main City, USA
Report of Independent Registered Public Accounting Firm
We have audited the consolidated balance sheets of Widget Company and subsidiaries as of December 31, 20X5 and 20X4, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 20X5. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Widget Company and subsidiaries as of December 31, 20X5 and 20X4, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20X5, in conformity with accounting principles generally accepted in the United States of America.
We have also previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 20X3, 20X2, and 20X1, and the related statements of income, retained earnings, and cash flows for the years ended December 31, 20X2 and 20X1 (none of which are presented herein); and we expressed unqualified opinions on those consolidated financial statements.
In our opinion, the information set forth in the selected financial data for each of the five years in the period ended December 31, 20X5, appearing on page xx, is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived.
Smith and Jones
March 15, 20X6
AU-C 810 ILLUSTRATIONS
The following reports on summary financial statements are illustrated:
1. An Unmodified Opinion Is Expressed on the Summary Financial Statements (the Auditor’s Report on the Summary Financial Statements Is Dated Later Than the Date of the Auditor’s Report on the Financial Statements from Which the Summary Financial Statements Are Derived)
2. An Unmodified Opinion Is Expressed on the Summary Financial Statements and a Qualified Opinion Is Expressed on the Audited Financial Statements
3. An Adverse Opinion Is Expressed on the Audited Financial Statements (as a Result of the Adverse Opinion on the Audited Financial Statements, It Is Inappropriate to Express, and the Auditor Does Not Express, an Opinion on the Summary Financial Statements)
4. An Adverse Opinion Is Expressed on the Summary Financial Statements Because They Are Not Consistent, in All Material Respects, with the Audited Financial Statements, in Accordance with the Applied Criteria
Illustration 1. An Unmodified Opinion is Expressed on the Summary Financial Statements (The Auditor’s Report on the Summary Financial Statements is Dated Later Than the Date of the Auditor’s Report on the Financial Statements from Which the Summary Financial Statements Are Derived)
Circumstances include all of the following:
- An unmodified opinion is expressed on the audited financial statements.
- Criteria are developed by management for the preparation of the summary financial statements and are adequately disclosed in Note X. The auditor has determined that the criteria are acceptable in the circumstances.
- An unmodified opinion is expressed on the summary financial statements.
- The auditor’s report on the summary financial statements is dated later than the date of the auditor’s report on the financial statements from which the summary financial statements are derived.
Independent Auditor’s Report on Summary Financial Statements
[Appropriate Addressee]
The accompanying summary financial statements, which comprise the summary balance sheet as of December 31, 20X1, the summary income statement, summary statement of changes in stockholders’ equity, and summary cash flow statement for the year then ended, and the related notes, are derived from the audited financial statements of ABC Company as of and for the year ended December 31, 20X1. We expressed an unmodified audit opinion on those audited financial statements in our report dated February 15, 20X2. The audited financial statements, and the summary financial statements derived therefrom, do not reflect the effects of events, if any, that occurred subsequent to the date of our report on the audited financial statements.
The summary financial statements do not contain all the disclosures required by [describe financial reporting framework applied in the preparation of the financial statements of ABC Company]. Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of ABC Company.
Management’s Responsibility for the Summary Financial Statements
Management is responsible for the preparation of the summary financial statements on the basis described in Note X.
Auditor’s Responsibility
Our responsibility is to express an opinion about whether the summary financial statements are consistent, in all material respects, with the audited financial statements based on our procedures, which were conducted in accordance with auditing standards generally accepted in the United States of America. The procedures consisted principally of comparing the summary financial statements with the related information in the audited financial statements from which the summary financial statements have been derived, and evaluating whether the summary financial statements are prepared in accordance with the basis described in Note X. We did not perform any audit procedures regarding the audited financial statements after the date of our report on those financial statements.
Opinion
In our opinion, the summary financial statements of ABC Company as of and for the year ended December 31, 20X1 referred to above are consistent, in all material respects, with the audited financial statements from which they have been derived, on the basis described in Note X.
[Auditor’s signature]
[Auditor’s city and state]
[Date of the auditor’s report]
Illustration 2. An Unmodified Opinion is Expressed on the Summary Financial Statements and a Qualified Opinion is Expressed on the Audited Financial Statements
Circumstances include all of the following:
- A qualified opinion is expressed on the audited financial statements.
- Criteria are developed by management for the preparation of the summary financial statements and are adequately disclosed in Note X. The auditor has determined that the criteria are acceptable in the circumstances.
- An unmodified opinion is expressed on the summary financial statements.
Independent Auditor’s Report on Summary Financial Statements
[Appropriate Addressee]
The accompanying summary financial statements, which comprise the summary balance sheet as of December 31, 20X1, the summary income statement, summary statement of changes in stockholders’ equity, and summary cash flow statement for the year then ended, and the related notes, are derived from the audited financial statements of ABC Company as of and for the year ended December 31, 20X1. We expressed a qualified audit opinion on those audited financial statements in our report dated February 15, 20X2 (see below).
The summary financial statements do not contain all the disclosures required by [describe financial reporting framework applied in the preparation of the financial statements of ABC Company]. Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of ABC Company.
Management’s Responsibility for the Summary Financial Statements
Management is responsible for the preparation of the summary financial statements on the basis described in Note X.
Auditor’s Responsibility
Our responsibility is to express an opinion about whether the summary financial statements are consistent, in all material respects, with the audited financial statements based on our procedures, which were conducted in accordance with auditing standards generally accepted in the United States of America. The procedures consisted principally of comparing the summary financial statements with the related information in the audited financial statements from which the summary financial statements have been derived, and evaluating whether the summary financial statements are prepared in accordance with the basis described in Note X.
Opinion
In our opinion, the summary financial statements of ABC Company as of and for the year ended December 31, 20X1 referred to above are consistent, in all material respects, with the audited financial statements from which they have been derived, on the basis described in Note X.
The summary financial statements are misstated to the equivalent extent as the audited financial statements of ABC Company as of and for the year ended December 31, 20X1. The misstatement of the audited financial statements is described in our qualified audit opinion in our report dated February 15, 20X2. Our qualified audit opinion is based on the fact that the Company’s inventories are carried in the balance sheet in those audited financial statements at $XXX. Management has not stated the inventories at the lower of cost or net realizable value but has stated them solely at cost, which constitutes a departure from [describe financial reporting framework applied in the preparation of the financial statements of ABC Company]. The Company’s records indicate that, had management stated the inventories at the lower of cost or net realizable value, an amount of $XXX would have been required to write the inventories down to their net realizable value. Accordingly, cost of sales would have been increased by $XXX, and income tax, net income, and stockholders’ equity would have been reduced by $XXX, $XXX, and $XXX, respectively. Our qualified audit opinion states that, except for the effects of the described matter, those financial statements present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with [describe financial reporting framework applied in the preparation of the financial statements of ABC Company].
[Auditor’s signature]
[Auditor’s city and state]
[Date of the auditor’s report]
Illustration 3. An Adverse Opinion is Expressed on the Audited Financial Statements (As a Result of the Adverse Opinion on the Audited Financial Statements, It is Inappropriate to Express, and the Auditor Does Not Express, an Opinion on the Summary Financial Statements)
Circumstances include both of the following:
- An adverse opinion is expressed on the audited financial statements. As a result of the adverse opinion on the audited financial statements, it is inappropriate to express, and the auditor does not express, an opinion on the summary financial statements, as described in paragraph .16.
- Criteria are developed by management for the preparation of the summary financial statements and are adequately disclosed in Note X. The auditor has determined that the criteria are acceptable in the circumstances.
Independent Auditor’s Report on Summary Financial Statements
[Appropriate Addressee]
Management derived the accompanying summary financial statements, which comprise the summary balance sheet as of December 31, 20X1, the summary income statement, summary statement of changes in stockholders’ equity, and summary cash flow statement for the year then ended, and the related notes, from the audited financial statements of ABC Company as of and for the year ended December 31, 20X1. Management is responsible for the preparation of these summary financial statements on the basis described in Note X.
In our report dated February 15, 20X2, we expressed an adverse audit opinion on the financial statements of ABC Company as of and for the year ended December 31, 20X1. The basis for our adverse audit opinion was [describe basis for adverse audit opinion]. Our adverse audit opinion stated that [describe adverse audit opinion].
Because of the significance of the matter discussed above, it is inappropriate to express, and we do not express, an opinion on the summary financial statements of ABC Company as of and for the year ended December 31, 20X1.
[Auditor’s signature]
[Auditor’s city and state]
[Date of the auditor’s report]
Illustration 4. An Adverse Opinion is Expressed on the Summary Financial Statements Because They Are Not Consistent, in All Material Respects, with the Audited Financial Statements, in Accordance with the Applied Criteria
Circumstances include all of the following:
- An unmodified opinion is expressed on the audited financial statements.
- Established criteria for the preparation of summary financial statements exist.
- The auditor expresses an adverse opinion on the summary financial statements because they are not consistent, in all material respects, with the audited financial statements, in accordance with the applied criteria.
Independent Auditor’s Report on Summary Financial Statements
[Appropriate Addressee]
The accompanying summary financial statements, which comprise the summary balance sheet as of December 31, 20X1, the summary income statement, summary statement of changes in stockholders’ equity, and summary cash flow statement for the year then ended, and the related notes, are derived from the audited financial statements of ABC Company as of and for the year ended December 31, 20X1. We expressed an unmodified audit opinion on those audited financial statements in our report dated February 15, 20X2.
The summary financial statements do not contain all the disclosures required by [describe financial reporting framework applied in the preparation of the financial statements of ABC Company]. Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of ABC Company.
Management’s Responsibility for the Summary Financial Statements
Management is responsible for the preparation of the summary financial statements on the basis described in Note X.
Auditor’s Responsibility
Our responsibility is to express an opinion about whether the summary financial statements are consistent, in all material respects, with the audited financial statements based on our procedures, which were conducted in accordance with auditing standards generally accepted in the United States of America. The procedures consisted principally of comparing the summary financial statements with the related information in the audited financial statements from which the summary financial statements have been derived, and evaluating whether the summary financial statements are prepared in accordance with the basis described in Note X.
Basis for Adverse Opinion
[Describe matter that caused the summary financial statements not to be consistent, in all material respects, with the audited financial statements, in accordance with the applied criteria.]
Adverse Opinion
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion paragraph, the summary financial statements of ABC Company as of and for the year ended December 31, 20X1 referred to above are not consistent with the audited financial statements from which they have been derived, on the basis described in Note X.
[Auditor’s signature]
[Auditor’s city and state]
[Date of the auditor’s report]
