SAS No. 118 Other Information in Documents Containing Audited Financial Statements

The ASB recently issued SAS No. 118, Other Information in Documents Containing Audited Financial Statements. It is effective for audits of financial statements for periods beginning on or after December 15, 2010 with early application permitted. Along with SAS No. 119, Supplementary Information in Relation to the Financial Statements as a Whole it supersedes the requirements and guidance in AU section 550. It also supersedes the requirements and guidance in AU section 551.

You’ll find that this Standard:

• Eliminates the distinction between other information that is included in an auditor-submitted document that contains the client’s basic financial statements and the auditor’s report and other information that is in a client-prepared document.
• Establishes a presumptively mandatory requirement that:
  
  • the auditor read the other information of which the auditor is aware in order to identify material inconsistencies, if any, with the audited financial statements.
  • the auditor make appropriate arrangements with management or those charged with governance to obtain the other information prior to the report release date.
  • if it is not possible to obtain all of the other information prior to the report release date, that the auditor read such other information as soon as practicable.
  • the auditor communicate with those charged with governance the auditor’s responsibility with respect to the other information, any procedures performed relating to the other information, and the results.
  • if, on reading the other information, the auditor identifies a material inconsistency prior to the report release date that requires revision of the audited financial statements and management refuses to make the revision, that the auditor modify the auditor’s opinion in accordance with AU section 508, Reports on Audited Financial Statements (AICPA, Professional Standards, vol. 1).
  • when the auditor identifies a material inconsistency prior to the report release date that requires revision of the other information and management refuses to make the revision, that the auditor communicate that matter with those charged with governance and include in the auditor’s report an explanatory paragraph describing the material inconsistency, in accordance with paragraph .11 of AU section 508; withhold the auditor’s report; or when withdrawal is possible under applicable law or regulation, withdraw from the engagement.
  • when revision of the audited financial statements is necessary as a result of a material inconsistency with other information and the auditor’s report on the financial statements has already been released, that the auditor apply the relevant requirements in AU section 561, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report (AICPA, Professional Standards, vol. 1).
  • when revision of the other information is necessary after the report release date and management agrees to make the revision, that the auditor carry out the procedures necessary in the circumstances.
  • when revision of the other information is necessary after the report release date but management refuses to make the revision, that the auditor notify those charged with governance of the auditor’s concerns regarding the other information and take any further appropriate action.
  • if, on reading the other information for the purpose of identifying material inconsistencies, the auditor becomes aware of an apparent material misstatement of fact, that the auditor discuss the matter with management. If, after discussion, the auditor still considers that there is an apparent material misstatement of fact, the statement establishes a presumptively mandatory requirement that the auditor request management to consult with a qualified third party, such as the entity’s legal counsel, and that the auditor consider the advice received by the entity in determining whether such matter is a material misstatement of fact.
  • when the auditor concludes that there is a material misstatement of fact in the other information and management refuses to correct, that the auditor notify those charged with governance of the auditor’s concerns and take any further appropriate action.
    

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