Proposed SSARS, Supplementary Information

Transcription

1 ARSC Meeting November 2-4, 2010 Agenda Item 6 Proposed SSARS, Supplementary Information Objective of Agenda Item To discuss and vote to ballot for exposure the proposed SSARS, Supplementary Information. Background At its meeting in August 2010, as part of its discussion of the proposed SSARS The Use of the Accountant s Name in a Document or Communication Containing Unaudited Financial Statements That Have Not Been Compiled or Reviewed (in the agenda materials for the August 2010 meeting, the draft was titled The Accountant s Responsibility For Unaudited Financial Statements That Have Not Been Compiled or Reviewed), the ARSC discussed the accountant s responsibility for information that accompanies the basic compiled or reviewed financial statements for supplementary analysis purposes. The ARSC directed that the guidance in paragraph.53 of AR 80, Compilation of Financial Statements and paragraph.60 of AR 90, Review of Financial Statements should be revised to be consistent with the requirements and guidance in Statement on Auditing Standards No. 118, Other Information in Documents Containing Audited Financial Statements; SAS No. 119, Supplementary Information in Relation to the Financial Statements as a Whole; and SAS No. 120, Required Supplementary Information. Issues for Discussion With the ARSC 1. Definition of supplementary information The auditing literature defines terms related to information presented for supplementary analysis purposes as follows: Other information Financial and nonfinancial information (other than the financial statements and the auditor s report thereon) that is included in a document containing audited financial statements and the auditor s report thereon, excluding required supplementary information (paragraph.05 of AU sec. 550) 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 (paragraph.04 of AU sec. 551). Required supplementary information Information that a designated accounting standard setter requires to accompany an entity s basic financial statements. Required supplementary information is not part of the basic financial statements; however, a Prepared by: M. Glynn (October 2010) Page 1 of 5

2 designated accounting standard setter considers the information to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. In addition, authoritative guidelines for the methods of measurement and presentation of the information have been established (paragraph.04 of AU sec. 558) The proposed SSARS proposes to revise paragraph.04 of AR section 60, Framework for Performing and Reporting on Compilation and Review Engagements to include the following definition of supplementary information: Supplementary information. Information presented outside of the basic financial statements that is not considered necessary for the financial statements to be presented in accordance with the applicable financial reporting framework. The proposed definition is consistent with the definition in the auditing literature except that it would include required For purposes of the SSARSs, there is no need to provide additional procedures related to required supplementary information. Additionally, since the term supplementary information is included in extant SSARSs, it is easily understood by accountants. The ARSC is asked to consider whether it agrees with the proposed definition of 2. Requirement to read the supplementary information At its meeting in August 2010, the ARSC determined that when the compiled or reviewed financial statements are accompanied by supplementary information, the accountant should read the supplementary information in order to identify material inconsistencies, if any, with the compiled or reviewed financial statements. Such a requirement would be consistent with the requirement in the auditing literature that the auditor read the other information of which the accountant is aware in order to identify material inconsistencies, if any, with the audited financial statements (paragraph.06 of AU sec. 550). Additionally, it is consistent with the requirement in paragraph.06 of the proposed SSARS, The Accountant s Responsibility for Unaudited Financial Statements That Have Not Been Compiled or Reviewed which requires the accountant to read the financial statements and other information in the document or communication and consider whether such financial statements and other information appears free from material inconsistencies with other knowledge or information of which the accountant may be aware. Neither extant SSARSs nor either the proposed SSARS, The Accountant s Responsibility for Unaudited Financial Statements That Have Not Been Compiled or Reviewed or the proposed SSARS, Supplementary Information includes a definition of inconsistency. Paragraph.05 of AU 550 includes the following definition of inconsistency: Inconsistency. Other information that conflicts with information contained in the audited financial statements. A material inconsistency may raise doubt about Agenda Item 6 Page 2 of 5

3 audit conclusions drawn from audit evidence previously obtained and, possibly, about the basis for the auditor s opinion on the financial statements. The ARSC is asked to consider whether the proposed requirement for the accountant to read the supplementary information in order to identify material inconsistencies, if any, with the compiled or reviewed financial statements is appropriate. The ARSC is also asked to consider whether the proposed SSARS should include a definition of inconsistency. 3. The accountant s actions when a material inconsistency is identified At its meeting in August 2010, the ARSC determined that if a material inconsistency is identified that the accountant should determine whether the compiled or reviewed financial statements or the supplementary information need to be revised. If the accountant concludes that the compiled or reviewed financial statements need to be revised and management refuses to make the revision, the ARSC concluded that the accountant should be required to report a departure from the applicable financial reporting framework in the accountant s compilation or review report. If the accountant concludes that the supplemental information needs to be revised and management refuses to make the revision, the accountant should discuss the issue with those charged with governance and either a) disclose the inconsistency in the accountant s compilation or review report; b) withhold the compilation or review report; or c) withdraw from the engagement. The ARSC is asked to consider whether the proposed SSARS appropriately captures the ARSC s conclusion as to the procedures that the accountant should follow if a material inconsistency is identified. 4. Situations where the compiled or reviewed financial statements are accompanied by supplementary information with respect to which the accountant has not performed any attest function Compiled or reviewed financial statements may be accompanied by supplementary information with respect to which the accountant has not performed any attest function. With respect to supplementary information that accompanies audited financial statements, SAS no. 118 does not require that the auditor report on such supplementary information nor does it require that the supplementary information include a label. The auditor s report is intended to serve as the notice to readers regarding the auditor s responsibility (the auditor has the option to include a disclaimer with respect to the supplementary information in the auditor s report on the financial statements). However, at its meeting in August 2010, the ARSC determined that when compiled or reviewed financial statements are accompanied by supplementary information with respect to which the accountant has not performed any attest function the SSARSs should include a Agenda Item 6 Page 3 of 5

4 requirement that the accountant s report on the compiled or reviewed financial statements that makes clear that the accountant has not compiled, reviewed, or audited the The ARSC acknowledged that although such requirement may be viewed as more restrictive than the corresponding audit requirement, that such a requirement is appropriate and in the public interest given the nature of compiled and reviewed financial statements. The ARSC is asked to consider whether the proposed SSARS includes the appropriate requirement when compiled or reviewed financial statements are accompanied by supplementary information with respect to which the accountant has not performed any attest function. 5. Situations where the accountant has compiled the basic financial statements and the supplementary information Extant SSARSs addresses the situation where the accountant compiles both the basic financial statements and the The proposed SSARS revises the reporting requirements to include a separate paragraph in the accountant s compilation report to address the Under extant SSARSs, the accountant can state that he or she has compiled the basic financial statements and the supplementary information in the introductory paragraph. The proposed change would make clear that the supplementary information is not part of the basic financial statements. The proposed SSARS would eliminate the option of reporting separately on the compiled The ARSC is asked to consider whether the revised reporting requirements when the accountant has compiled the basic financial statements and the supplementary information are appropriate. 6. Situations where the accountant has reviewed the basic financial statements and either subjected the supplementary information to the accountant s review procedures or compiled the supplementary information Extant SSARSs addresses the situations where the accountant has reviewed the basic financial statements and has either subjected the supplementary information to the accountant s review procedures or compiled the The proposed SSARS revises the reporting requirements when the accountant has reviewed the basic financial statements and either subjected the supplementary information to the accountant s review procedures or compiled the supplementary information to require a separate paragraph in the accountant s review report to address the supplementary information. The proposed SSARS would eliminate the option of reporting separately on the Agenda Item 6 Page 4 of 5

5 The ARSC is asked to consider whether the revised reporting requirements when the accountant has reviewed the basic financial statements and either subjected the supplementary information to the accountant s review procedures or compiled the supplementary information are appropriate. The ARSC is asked to vote to ballot to expose the proposed SSARS for public comment Agenda Items Presented: Agenda item 6A Draft proposed SSARS, Supplementary Information Agenda Item 6 Page 5 of 5