Supplementary Information
Financial statements rarely stand alone. They are often accompanied by additional information — some required by accounting standards, some voluntarily included by management, and some appearing in documents alongside the audited statements. The auditor's responsibilities for this supplementary information differ significantly based on what type of information it is and what the auditor has been engaged to do.
This section covers the objectives of supplementary information engagements, the auditor's procedures for required supplementary information (RSI), other (voluntary) supplementary information, and the auditor's responsibility for other information in documents containing audited financial statements.
Objectives of Supplementary Information Engagements
The fundamental objective when dealing with supplementary information is to determine the appropriate level of responsibility the auditor has for information beyond the basic financial statements. This depends on:
- Whether the information is required or voluntary — Required supplementary information (RSI) is mandated by a standard-setter; voluntary supplementary information (SI) is included at management's discretion
- Whether the auditor has been specifically engaged to report on the information — The auditor's procedures and the level of assurance provided differ dramatically based on engagement terms
- The relationship between the supplementary information and the audited financial statements — The auditor must evaluate whether the information is consistent with the audited financial statements and whether it is fairly stated
The auditor's report on the basic financial statements does not cover supplementary information unless the auditor has been specifically engaged to report on it or is required by standards to perform specific procedures.
Required Supplementary Information (RSI)
RSI is information that a designated accounting standard-setter (such as the FASB or GASB) requires to accompany the basic financial statements. It is not part of the financial statements themselves, but standard-setters consider it essential for placing the financial statements in context.
Common examples of RSI include:
- Management's Discussion and Analysis (MD&A) in governmental financial statements
- Budgetary comparison schedules for governmental entities
- Pension and OPEB schedules (schedules of changes in net pension liability, contributions, etc.)
- Oil and gas reserve information for entities in the extractive industries
- Selected quarterly financial data (for issuers, when required by SEC rules)
Auditor's Procedures for RSI
The auditor must apply limited procedures to the RSI. These are not full audit procedures — they are significantly narrower in scope. The auditor's limited procedures include:
- Inquiring of management about the methods used to prepare the RSI, whether the methods have changed from the prior period, and any significant assumptions or interpretations underlying the information
- Comparing the RSI for consistency with the audited financial statements and with other knowledge obtained during the audit
- Considering whether the RSI (including its form and content) appears to conform to applicable guidelines established by the standard-setter
- Obtaining written representations from management regarding the RSI
Example: Gies Co. is a governmental entity that presents budgetary comparison schedules and pension schedules as RSI alongside its basic financial statements. The auditor asks management how the budgetary comparisons were prepared, checks that the pension data aligns with the amounts in the audited financial statements, and confirms the schedules follow GASB presentation guidelines.
Level of Assurance
The auditor does not audit the RSI and does not express an opinion or any form of assurance on it. The purpose of the limited procedures is to identify any material departures from the guidelines, not to provide assurance.
Reporting on RSI
The auditor communicates the results of RSI procedures in the audit report. For nonissuers, this is done through an other-matter paragraph; for issuers, through an explanatory paragraph. The paragraph typically states:
- The RSI is included as required by the applicable standard-setter
- The auditor applied certain limited procedures in accordance with auditing standards
- The auditor does not express an opinion or provide any assurance on the RSI
Reporting Exceptions for RSI
If the auditor encounters problems with the RSI, the report must be modified accordingly:
| Situation | Reporting Treatment |
|---|---|
| RSI is omitted entirely | The auditor notes the omission in the report |
| RSI departs materially from prescribed guidelines | The auditor describes the departure |
| The auditor is unable to complete the limited procedures | The auditor states that the limited procedures were not completed and explains why |
| RSI is present and no issues are identified | Standard language — limited procedures applied, no opinion expressed |
Example: MAS Inc. is required to present a schedule of employer contributions to its pension plan as RSI. Management includes the schedule, but the auditor notices the actuarial assumptions used are inconsistent with those disclosed in the pension note. The auditor describes this inconsistency in the other-matter paragraph.
The auditor's responsibility for RSI is limited — but that doesn't mean the auditor can ignore it. Omissions, material departures, and inconsistencies must all be reported.
Other (Voluntary) Supplementary Information
Voluntary supplementary information (SI) is information that management chooses to include alongside the audited financial statements. This information is not required by accounting standards but may be presented to provide additional detail to users.
Common examples include:
- Detailed schedules of operating expenses
- Consolidating schedules (showing individual entity details that roll up into the consolidated statements)
- Historical summaries of financial data
- Statistical data or operational metrics
- Schedules of investments or detailed account analyses
Auditor's Responsibility
The auditor's responsibility for voluntary SI depends entirely on the terms of the engagement.
Scenario A — Engaged to Report on the Supplementary Information
When the auditor is specifically engaged to report on the SI, the auditor performs audit procedures to determine whether the information is fairly stated, in all material respects, in relation to the financial statements as a whole. This engagement requires that:
- The auditor has also audited the basic financial statements
- The auditor did not issue an adverse opinion or a disclaimer of opinion on the basic financial statements (because the "in relation to" opinion derives its meaning from the opinion on the basic financials)
The procedures performed include:
- Agreeing or reconciling the SI to the underlying accounting and other records
- Testing the completeness of the SI
- Examining whether the form and content of the SI complies with the applicable criteria
- Testing the accuracy of amounts or other data
Example: Kingfisher Industries engages its auditor to report on a consolidating schedule that breaks down revenue and expenses by subsidiary. The auditor reconciles the consolidating schedule to the trial balances of each subsidiary, tests selected amounts for accuracy, and issues an opinion that the schedule is fairly stated in relation to the consolidated financial statements as a whole.
Scenario B — Not Engaged to Report on the Supplementary Information
When the auditor has not been engaged to report on the SI, the auditor treats it as other information. The auditor's responsibility is limited to:
- Reading the information to identify material inconsistencies with the audited financial statements
- Remaining alert for material misstatements of fact
The auditor does not perform audit procedures on the information and does not express any assurance on it.
Reporting When Engaged to Report
When the auditor has been engaged to report on voluntary SI, the opinion can be communicated in one of two ways:
- In an other-matter paragraph in the auditor's report on the basic financial statements — the paragraph expresses the "in relation to" opinion
- In a separate report — the auditor issues a stand-alone report on the SI
The "in relation to" opinion is a lesser level of assurance than the opinion on the basic financial statements. It means the SI is fairly stated relative to the financial statements as a whole — not that it would stand on its own. Think of it as the SI being "along for the ride" with the basic financial statements.
Auditor Responsibility for Other Information in Documents
Beyond RSI and voluntary SI, the auditor may encounter other information included in documents containing the audited financial statements. This is particularly common in:
- Annual reports that include the audited financial statements alongside management's letter to shareholders, operational highlights, or forward-looking statements
- Offering documents or registration statements that include the audited financial statements
- Government reports (e.g., Single Audit reports) that include the audited financial statements alongside supplementary schedules
What Is "Other Information"?
Other information is financial and non-financial information (other than the financial statements and the auditor's report) included in a document containing the audited financial statements. Examples include:
- A president's or CEO's letter to shareholders
- Management's Discussion and Analysis (when it is not RSI)
- Operating statistics or performance highlights
- Selected financial data or charts
- Descriptions of the entity's operations, employees, or planned capital expenditures
Auditor's Responsibility
The auditor's responsibility for other information is to:
- Read the other information to identify material inconsistencies between the other information and the audited financial statements
- Remain alert for material misstatements of fact (information that is unrelated to the financial statements but is nevertheless incorrect)
The auditor does not audit the other information and does not express an opinion or any form of assurance on it.
What Happens When Inconsistencies or Misstatements Are Found?
| Finding | Auditor's Action |
|---|---|
| Material inconsistency with the audited financial statements | Determine whether the financial statements or the other information needs revision. If the other information is wrong, request management to correct it. If management refuses, consider the effect on the auditor's report |
| Material misstatement of fact (unrelated to the financial statements) | Discuss with management. If the auditor concludes a misstatement exists and management refuses to correct it, the auditor considers further action (e.g., consulting legal counsel, communicating with those charged with governance) |
| No inconsistencies or misstatements identified | No additional reporting is required, though the auditor may include an other-information section in the report |
Example: Illini Entertainment includes a letter from the CEO in its annual report that states the company achieved "record-breaking revenue growth of 25%." The auditor reviews this and notes that the audited income statement shows revenue growth of only 12%. This is a material inconsistency. The auditor discusses the discrepancy with management and requests correction of the CEO's letter. If management refuses, the auditor evaluates the effect on the report and may include additional language.
For nonissuer audits under AICPA standards, the auditor may include an "Other Information" section in the auditor's report, which describes the auditor's responsibilities for the other information, states that the auditor read it, and notes whether any material inconsistencies were identified.
Comparison: RSI vs. Voluntary SI vs. Other Information
| Feature | RSI | Voluntary SI (Engaged) | Voluntary SI (Not Engaged) / Other Information |
|---|---|---|---|
| Required by standards? | Yes (FASB, GASB, etc.) | No | No |
| Auditor's procedures | Limited procedures (inquire, compare, evaluate) | Audit procedures (test, reconcile, examine) | Read for consistency |
| Level of assurance | None — disclaimed | "In relation to" opinion | None |
| Reporting | Other-matter / explanatory paragraph | Other-matter paragraph or separate report | Other-information section (optional) or no specific reporting |
| Can the auditor opine? | No | Yes — "in relation to" | No |
Key Takeaways for the AUD Exam
| Concept | Key Point |
|---|---|
| RSI | Limited procedures, no opinion — just check it's there and makes sense |
| Voluntary SI (engaged) | Audit procedures → "in relation to the financial statements as a whole" opinion |
| Voluntary SI (not engaged) | Read for consistency — no procedures, no opinion |
| Other information | Read for material inconsistencies — no assurance provided |
| "In relation to" opinion | Lesser assurance; requires an unmodified or qualified opinion on the basic financials |
| Adverse or disclaimer | Cannot issue an "in relation to" opinion if the basic financial statement opinion is adverse or a disclaimer |
When a question asks about supplementary information, first determine: (1) Is it required (RSI) or voluntary? (2) Was the auditor engaged to report on it? Your answers to these two questions determine everything — the procedures, the assurance level, and the reporting.