Other Information in Audited Documents
When an entity publishes its audited financial statements, those statements are often accompanied by additional information — such as management's discussion and analysis (MD&A), letters to shareholders, operating statistics, and other data. Although the auditor's opinion covers only the financial statements and related notes, the auditor has specific responsibilities regarding this "other information." If the other information is materially inconsistent with the audited financial statements or contains a material misstatement of fact, the auditor must take action.
This section covers the auditor's responsibilities under AU-C 720 and AS 2710, what constitutes other information, the procedures for reading and evaluating it, and the reporting requirements introduced under SAS 146.
What Constitutes "Other Information"
Other information is financial and non-financial information (other than the financial statements and the auditor's report) included in an entity's annual report or other document containing audited financial statements.
Common Examples
| Included as Other Information | Not Other Information |
|---|---|
| Management's Discussion and Analysis (MD&A) | The audited financial statements themselves |
| Letter to shareholders / President's letter | Notes to the financial statements |
| Operating and financial highlights | Required supplementary information (RSI) covered by AU-C 730 |
| Statistical data and charts | Supplementary information covered by AU-C 725 |
| Selected financial data | Information in a separate document not containing the F/S |
| Corporate governance information | Press releases issued separately from the annual report |
| Board of directors' report | Prospectuses (covered by separate standards) |
The key distinction is that other information is included in the same document as the audited financial statements (typically the annual report). Information published separately — such as a standalone press release — is generally not subject to these requirements, though the auditor should remain alert to any inconsistencies they become aware of.
Example: Kingfisher Industries publishes an annual report that includes the audited financial statements, MD&A, a letter from the CEO, five-year selected financial data, and a corporate responsibility summary. All of these items (except the audited financial statements and notes) constitute "other information" that the auditor must read and consider.
Applicable Standards
| Standard | Applies To | Key Focus |
|---|---|---|
| AU-C 720 (AICPA) | Nonissuer audits | Other information in documents containing audited financial statements |
| AS 2710 (PCAOB) | Issuer audits | Other information in documents containing audited financial statements |
| SAS 146 (AICPA) | Nonissuer audits | Updated reporting model including the "Other Information" section in the auditor's report |
Auditor's Responsibilities
The auditor's responsibilities regarding other information are limited but important. The auditor does not audit, review, or provide any assurance on the other information. However, the auditor must:
- Read the other information
- Consider whether there is a material inconsistency between the other information and the audited financial statements
- Consider whether there is a material inconsistency between the other information and the auditor's knowledge obtained during the audit
- Remain alert for indications of a material misstatement of fact
Think of the auditor's role regarding other information as a "read and consider" responsibility — not an audit or review. The auditor is leveraging knowledge already obtained during the audit to identify red flags.
Reading and Considering Other Information
Timing
- The auditor should obtain the other information prior to the date of the auditor's report whenever possible
- If the other information is not available before the report date, the auditor should read it as soon as practicable after the report date
Procedures
The auditor's procedures include:
| Step | Description |
|---|---|
| 1. Read | Read the other information in its entirety |
| 2. Compare | Compare financial amounts and other data in the other information with corresponding information in the audited financial statements |
| 3. Evaluate consistency | Evaluate whether the other information is materially consistent with the auditor's understanding of the entity and its environment gained during the audit |
| 4. Remain alert | Be alert for information that appears to be materially misstated based on the auditor's general knowledge |
Example: While reading Bear Co.'s annual report, the auditor notes that the MD&A states revenue grew 15% year over year. However, the audited income statement shows revenue growth of only 8%. This is a material inconsistency that requires further investigation.
Material Inconsistencies
A material inconsistency exists when the other information contradicts information in the audited financial statements. When the auditor identifies a material inconsistency:
Before the Auditor's Report Date
- Discuss the inconsistency with management
- Determine whether the financial statements need to be revised (if the financial statements are wrong)
- Determine whether the other information needs to be revised (if the other information is wrong)
- If management refuses to make necessary revisions:
- If the financial statements are materially misstated → modify the audit opinion
- If the other information is materially misstated → describe the inconsistency in the "Other Information" section of the auditor's report
After the Auditor's Report Date
If the auditor becomes aware of a material inconsistency after the report date:
- Discuss with management and those charged with governance
- If the other information is revised → no further action needed
- If management refuses to revise → consider the auditor's legal and professional responsibilities, which may include:
- Communicating with those charged with governance
- Consulting with legal counsel
- Withholding the auditor's report (if not yet released)
The auditor cannot simply ignore a material inconsistency. Even though the auditor does not provide assurance on the other information, a known inconsistency undermines the credibility of the financial statements and the auditor's report.
Material Misstatements of Fact
A material misstatement of fact is information in the other information that is unrelated to the financial statements but is nonetheless incorrectly stated. The auditor may become aware of such misstatements based on general knowledge.
Example: Illini Entertainment's annual report states that the company has "500 retail locations across 48 states." The auditor, through work performed during the audit, knows the company has only 320 retail locations in 35 states. This is a material misstatement of fact.
Auditor's Response
| Step | Action |
|---|---|
| 1. Discuss | Discuss the apparent misstatement with management |
| 2. Evaluate | Consider whether the auditor has the expertise to assess the matter (e.g., legal claims, scientific data) |
| 3. Request correction | Ask management to correct the misstatement |
| 4. If unresolved | Consider the need to communicate with those charged with governance or obtain legal advice |
The auditor is not expected to have expertise in all areas covered by the other information. If the matter is outside the auditor's competence (e.g., a scientific claim in the annual report), the auditor may determine that no further action is necessary beyond discussing it with management.
Reporting Requirements Under SAS 146
Under the current AICPA reporting model (SAS 146, effective for nonissuer audits), the auditor's report includes a specific section on other information.
"Other Information" Section in the Auditor's Report
When the auditor has obtained the other information prior to the report date, the auditor's report includes a section titled "Other Information" that contains the following:
| Element | Description |
|---|---|
| Identification | Identifies the other information obtained by the auditor |
| Management's responsibility | States that management is responsible for the other information |
| No opinion or assurance | States that the auditor does not express an opinion or any form of assurance on the other information |
| Auditor's responsibility | Describes the auditor's responsibility to read the other information and consider whether it is materially inconsistent with the financial statements or the auditor's knowledge |
| Conclusion | States whether the auditor has identified a material inconsistency or material misstatement of fact, or states that the auditor has nothing to report |
Example report language (no issues identified):
We have read the other information included in Gies Co.'s annual report and considered whether it is materially inconsistent with the financial statements or our knowledge obtained during the audit. We did not audit the other information and do not express an opinion or any form of assurance thereon. Based on our reading, we have not identified any material inconsistencies.
When a Material Inconsistency Exists
If the auditor concludes that there is a material inconsistency in the other information (and management refuses to correct it), the auditor must:
- Describe the material inconsistency in the Other Information section of the report
PCAOB Reporting
Under PCAOB standards (AS 2710), the requirements are similar in substance but differ in format:
- There is no required separate section in the auditor's report for other information (unlike SAS 146)
- The auditor's obligations to read, consider, and respond to inconsistencies still apply
- If a material inconsistency is identified and cannot be resolved, the auditor considers revising the report, withholding the report, or withdrawing from the engagement
No Opinion on Other Information
A critical concept for the CPA exam is that the auditor provides no opinion and no assurance on the other information:
| Auditor Provides | On What |
|---|---|
| Reasonable assurance (opinion) | Audited financial statements |
| Limited assurance (conclusion) | Reviewed financial statements |
| No assurance | Other information in documents containing audited F/S |
Example: After reading MAS Inc.'s annual report, the auditor has read the MD&A section, the CEO's letter, and the five-year financial summary. Even though the auditor has read all of this material and considered it for consistency, the auditor's report makes clear that no opinion or assurance is expressed on any of it.
Exam questions may try to trick you into thinking the auditor provides limited assurance or some form of assurance on the other information. The correct answer is always no assurance — the auditor only reads and considers the information for material inconsistencies and misstatements of fact.
Procedures When Issues Are Found — Decision Flowchart
The following summarizes the auditor's decision process:
| Issue Identified | Financial Statements Need Revision? | Other Information Needs Revision? | Action |
|---|---|---|---|
| Material inconsistency | Yes | No | Revise F/S or modify audit opinion |
| Material inconsistency | No | Yes | Request management revise other info; if refused, describe in report |
| Material misstatement of fact | N/A | Yes | Discuss with management; request correction; consider further steps |
| No issues | N/A | N/A | State in the Other Information section that nothing to report |
Example: BIF Partners' annual report states that net income increased 20% from the prior year. The audited financial statements show net income decreased 3%. This material inconsistency clearly resides in the other information (the MD&A), not the financial statements. The auditor discusses with management and requests that the MD&A be corrected. If management refuses, the auditor describes the inconsistency in the Other Information section of the report.
Summary
| Concept | Key Points |
|---|---|
| Other information | Financial and non-financial data in documents containing audited F/S (e.g., annual reports, MD&A) |
| AU-C 720 / AS 2710 | Govern the auditor's responsibilities regarding other information |
| Auditor's responsibility | Read and consider — not audit, review, or provide assurance |
| Material inconsistency | Contradiction between other information and audited financial statements |
| Material misstatement of fact | Incorrect information unrelated to the F/S in the other information |
| SAS 146 reporting | Includes an "Other Information" section in the auditor's report identifying the information, describing the auditor's responsibility, and stating the conclusion |
| PCAOB reporting | No separate required section, but same read-and-consider obligations apply |
| Assurance level | No opinion and no assurance on other information |
| Resolution process | Discuss with management → request correction → describe in report or consider further action if unresolved |
| Timing | Obtain other information before report date if possible; if not, read as soon as practicable |