Auditor-Submitted DocumentsInformation accompanying the basic financial statements in auditor-submitted documents is potentially confusing. The key to understanding it is recognizing that the auditor’s reporting responsibility is determined by the type of document containing audited financial statements rather than the nature of the information that might be included in the document in addition to the statements. The auditor’s obligation to report on information other than audited statements depends on whether the document isclient-prepared” or “auditor submitted”:

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  • In a “client-prepared document“, the presumption is that the auditor has audit responsibility only for the information explicitly identified in the introductory paragraph of the standard audit report. For example, the usual type of client-prepared document is the glossy annual report of a public company. The presumption is that any information within the glossy covers is the responsibility of the entity’s management. The auditor reports on the financial statements audited and explicitly describes the degree of responsibility assumed for them.
  • The presumption changes for “auditor-submitted” documents. An auditor-submitted document usually is a bound document prepared by the auditor with a distinctive typeface, paper, and format that usually carries the logo or identifying letterhead of the auditor. Because this type of document obviously comes from the auditor, there is a presumption of responsibility for all the information included. To clarify the degree of responsibility, it is necessary for the auditor explicitly to report on all the information.

The nature of the information included in addition to the financial statements typically has no influence on the auditor’s obligation to report. Customarily there are some differences, however, in the nature of the information. For example: a glossy annual report usually has a president’s letter to shareholders and an auditor-submitted document usually does not.

An auditor-submitted document is more likely to contain schedules of the items included in an account balance, such as a schedule of investments; an annual report is more likely to contain a management’s discussion and analysis (MD&A).

Information outside the financial statements in a client-prepared document is normally not reported on explicitly unless the auditor has been specifically engaged to provide audit or attest services on the information. The auditor has a very limited responsibility for it, “Other Information in Documents Containing Audited Financial Statements.”

One of the confusing aspects is that in a client-prepared document, information outside the financial statements is called “other information“, but the same type of information may appear in an auditor-submitted document and would then be called “accompanying information“. Generally the nature of the information has no bearing on reporting responsibility; the type of document is the sole determinant.

Another potential source of confusion is that the type of document usually determines whether the auditor should report on information, but the auditor may at the client’s request report on information in a client-prepared document using the same form of reporting as for an auditor-submitted document. For certain types of information, namely, condensed financial statements or selected financial data and supplementary information required by GAAP, however, there are separate reporting requirements, and the form of reporting differs, depending on whether the document including the information is client-prepared or auditor-submitted.

At one time auditor-submitted documents with information accompanying the basic financial statements were called “long-form reports”. An auditor-submitted document with only the basic financial statements and an auditor’s report on them was called a “short-form report”. The audit report itself, however, was also generally referred to as a short-form report. In 1972, the term short-form report was replaced with “standard report” in the authoritative literature, and the once-common distinction between short-form and long-form reports was obscured. This resolved the matter by linking reporting responsibility to the type of document rather than to the length of report or the nature of the information covered.

 

 

Content Of Accompanying Information

There is no authoritative guidance on what information should accompany the basic financial statements in an auditor-submitted document. The content of accompanying information is entirely a matter of what is useful or desired in the circumstance. There is no required minimum or maximum.

Generally, in the preliminary stages of the engagement, the auditor should discuss with the client what information in addition to the basic financial statements might be useful in light of the intended use of the financial statements. Some auditors, however, for purposes of efficiency, adopt a standardized content for accompanying information.

Some of the possible types of accompanying information are:

  • Schedules of Accounts – One of the most common forms of accompanying information is schedules of important components of the financial statements; for example, a schedule listing the investments held or the details of receivables or property, plant, and equipment, or the components of major expenses. Generally, this form of information is useful to management as well as to others, such as bankers, who extend credit to the entity.
  • Statistical Data – A table or schedule of significant financial ratios (current ratio, inventory and sales turnover, etc.) may be useful to both management and other users.

 

Format Of Report Document

There are several acceptable formats for auditor-submitted documents. For example: a format with a separate report on accompanying information might have the following table of contents:

  • Auditor’s standard report.
  • Basic financial statements including notes.
  • Separate auditor’s report on accompanying information.
  • Accompanying information.

Generally auditors tend to prefer the preceding format. It has the advantage of making a clear separation of the basic financial statements and the accompanying information and the different degree of responsibility the auditor assumes for each. If, however, the report on accompanying information is not separate, the format of the document might be as follows:

  • Auditor’s report.
  • Standard introductory paragraph.
  • Standard scope paragraph.
  • Standard opinion paragraph.
  • Separate paragraph on accompanying information.
  • Basic financial statements including notes.
  • Accompanying information.

 

Audit Procedures Applied To Accompanying Information

The auditor is not required to express an opinion on accompanying information. The requirement is to report on the information and describe the degree of responsibility assumed for it.

If the scope of the audit of the basic financial statements includes sufficient procedures applied to accompanying information, then the auditor can express an opinion on whether the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Example: if receivables and investments are material to the basic financial statements, then the procedures applied in the audit are normally adequate to say whether schedules of receivables and investments are fairly stated in all material respects in relation to the basic financial statements.

Sometimes the client may request the presentation of information that is not normally the subject of auditing procedures included in the audit of the basic financial statements. The auditor could simply disclaim an opinion on this accompanying information. It generally is advisable, however, to discuss with the client the cost of extending the scope of the audit to be able to express an opinion on the accompanying information.

 

Illustrations

1. Separate Report On Information Accompanying Basic Financial Statements In Auditor-Submitted Document (AU 551.12)

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The [identify accompanying information] is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Note: This report also may be included in the auditor’s standard report as a fourth paragraph.

 

2. Disclaimer On Accompanying Information

When the auditor disclaims an opinion on all or part of the accompanying information in a document that he or she submits to the client or to others, the information (on which a disclaimer is issued) should be marked “unaudited” and the report should disclaim an opinion on the information.

 
Disclaimer on All Accompanying Information

Following is an example from AU 551.13 of a separate disclaimer on all accompanying information. It should appear after the notes to the basic financial statements and just before the accompanying information:

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The [identify the accompanying information] is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we express no opinion on it.

The report may also be included in the auditor’s standard report as a fourth paragraph, as shown.

We have audited the accompanying balance sheet of Widget Company as of December 31, 2010, and the related statements of income, retained earnings, and cash flows for the year then ended. 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.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Widget Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The [identify the accompanying information] is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we express no opinion on it.

 

Disclaimer on Part of Accompanying Information

Following is an example from AU 551.13 of a separate disclaimer on part of the accompanying information. It should appear after the notes to the basic financial statements and just before the accompanying information. The report also may be included in the auditor’s standard report as a fourth paragraph:

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The information on pages xx-xy is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information, except for the portion marked “unaudited,” on which we express no opinion, has been subjected to the auditing procedures applied in the audit of the basic financial statements; and, in our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

 

3. Qualification On Part Of Accompanying Information When Auditor’s Report Contains Qualification On Basic Financial Statements

Following is an example from AU 551.14 of a qualification on part of the accompanying information when the auditor expresses a qualification on the basic financial statements. It should appear after the notes to the basic financial statements and just before the accompanying information. The report also may be included in the auditor’s standard report as the last paragraph.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules of investments (page 7), property (page 8), and other assets (page 9) as of December 31, 2010, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The information in such schedules has been subjected to the auditing procedures applied in the audit of the basic financial statements; and, in our opinion, except for the effects on the schedule of investments of not accounting for the investments in certain companies by the equity method as explained in the second preceding paragraph (second paragraph of our report on page 1), such information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.”

 

4. Supplementary Information Required By Gaap Pronouncements

Below is an example from AU 551.15 of the disclaimer of opinion in an auditor submitted document on supplementary information required by GAAP. The disclaimer of opinion should appear after the notes to the basic financial statements and just before the section containing supplementary information. This report also may be included in the auditor’s report as the fourth paragraph:

The [identify the supplementary information] on page xx is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.”

 

5. Consolidating Information

Following is an example from AU 551.19 of an auditor’s report when the consolidated financial statements include consolidating information that has not been separately audited. This report should appear just after the notes to the basic financial statements and just before the consolidating information:

The report also may be included in the auditor’s standard report as a fourth paragraph.
Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The consolidating information is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position (results of operations and cash flows) of the individual companies. The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole
.”

This same form of report would be used for combining financial statements by substitutingcombined” and “combining” for “consolidated” and “consolidating.”