Scope and objectives
The Auditing standards outline the auditor’s responsibilities regarding comparative information in an audit of financial statements. Comparative information is essentially information that presents the financial results and position of an entity for one or more prior periods for comparison with the current period. The nature of the comparative information presented in an entity’s financial statements depends on the requirements of the applicable financial reporting framework.
There are two broad approaches to the auditor’s reporting responsibilities for comparative information: corresponding figures and comparative financial statements. Corresponding figures are comparative information where amounts and other disclosures for the prior period are included as an integral part of the current period financial statements, and are intended to be read only in relation to the amounts and other disclosures relating to the current period. The level of detail presented in the corresponding amounts and disclosures is dictated primarily by its relevance to the current period figures. On the other hand, comparative financial statements are comparative information where amounts and other disclosures for the prior period are included for comparison with the financial statements of the current period but, if audited, are referred to in the auditor’s opinion. The level of information included in those comparative financial statements is comparable with that of the financial statements of the current period.
The objectives of the auditor in this context are to obtain sufficient appropriate audit evidence about whether the comparative information included in the financial statements has been presented, in all material respects, in accordance with the requirements for comparative information in the applicable financial reporting framework. The auditor must then report in accordance with the auditor’s reporting responsibilities. The SA 710` provides definitions for comparative information, corresponding figures, and comparative financial statements.
It is important to note that this SA 710 is effective for audits of financial statements for periods beginning on or after April 1, 2011. The auditor’s responsibilities regarding opening balances when the financial statements of the prior period have been audited by a predecessor auditor or were not audited are outlined in SA 5101 and also apply in this context.
Audit Procedures
The audit procedures is an auditor must perform regarding comparative information presented in the financial statements. Comparative information refers to the amounts and disclosures included in the financial statements for one or more prior periods. There are two approaches to presenting comparative information: corresponding figures and comparative financial statements. The auditor’s reporting responsibilities differ between these approaches.
The auditor should first determine whether the financial statements include the required comparative information and whether it is appropriately classified. The auditor must then evaluate whether the comparative information agrees with the amounts and other disclosures presented in the prior period and whether the accounting policies reflected in the comparative information are consistent with those applied in the current period. If there have been changes in accounting policies, the auditor must ensure that those changes have been properly accounted for and adequately presented and disclosed.
If the auditor identifies a possible material misstatement in the comparative information while performing the current period audit, they must perform additional audit procedures to obtain sufficient appropriate audit evidence to determine whether a material misstatement exists. If the auditor had audited the prior period’s financial statements, they must also follow the relevant requirements of SA 5603.
The auditor must request written representations from management for all periods referred to in the auditor’s opinion. In the case of comparative financial statements, the written representations are requested for all periods referred to in the auditor’s opinion because management needs to re-affirm that the written representations it previously made with respect to the prior period remain appropriate. In the case of corresponding figures, the written representations are requested for the financial statements of the current period only because the auditor’s opinion is on those financial statements, which include the corresponding figures. However, the auditor requests a specific written representation regarding any prior period item that is separately disclosed in the current year’s statement of profit and loss.
SA 710 notes that the requirements and guidance in SA 5101 regarding opening balances apply if the financial statements of the prior period were not audited or were audited by a predecessor auditor.
Audit Reporting
The various aspects related to audit reporting, specifically when corresponding figures are presented. Corresponding figures are financial information presented in the prior period that is included for comparative purposes in the current period financial statements.
However, if the auditor’s report on the prior period included a qualified opinion, disclaimer of opinion, or adverse opinion and the matter giving rise to the modification is unresolved, the auditor shall modify the auditor’s opinion on the current period’s financial statements.
In the Basis for Modification paragraph in the auditor’s report, the auditor shall either refer to both the current period’s figures and the corresponding figures in the description of the matter giving rise to the modification when the effects or possible effects of the matter on the current period’s figures are material. Alternatively, the auditor shall explain that the audit opinion has been modified because of the effects or possible effects of the unresolved matter on the comparability of the current period’s figures and the corresponding figures.
If the auditor obtains audit evidence that a material misstatement exists in the prior period financial statements on which an unmodified opinion has been previously issued, the auditor shall verify whether the misstatement has been dealt with as required under the applicable financial reporting framework. If it has not been dealt with as required, the auditor shall express a qualified opinion or an adverse opinion in the auditor’s report on the current period financial statements, modified with respect to the corresponding figures included therein.
The prior period financial statements that are misstated have not been amended and an auditor’s report thereon has not been issued in accordance with the requirements of SA 560, “Subsequent Events,” but the corresponding figures have been properly dealt with as required under the applicable financial reporting framework and the appropriate disclosures have been made in the current period financial statements, the auditor’s report may include an Emphasis of Matter paragraph describing the circumstances and referring to, where relevant, disclosures that fully describe the matter that can be found in the financial statements.
If the auditor decides to refer to the predecessor auditor’s report on the corresponding figures, they must include certain information in an Other Matter paragraph in the current report, including the fact that the prior period financial statements were audited by the predecessor auditor, the type of opinion expressed by the predecessor auditor, and the date of the report.
If the prior period financial statements were not audited, the auditor must state this in an Other Matter paragraph in the current report and also obtain sufficient appropriate audit evidence that the opening balances do not contain misstatements that materially affect the current period’s financial statements.
SA 710 also mentions that if the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, they may need to express a qualified opinion or disclaim an opinion on the financial statements, or determine this to be a key audit matter in accordance with SA 7019. SA 710 includes an illustrative example of the auditor’s report if the prior period financial statements were audited by a predecessor auditor and the auditor is permitted by law or regulation to refer to the predecessor auditor’s report on the corresponding figures.
Comparative Financial Statements
It states that the auditor’s opinion must refer to each period for which financial statements are presented, and the auditor may express a different opinion on each period if necessary.
If prior period financial statements were audited by a predecessor auditor, the current auditor must disclose this fact and the type of opinion expressed by the predecessor auditor. If there were material misstatements in the prior period financial statements, the auditor must communicate this to appropriate management and request that the predecessor auditor be informed.
If the prior period financial statements were not audited, the auditor must disclose this fact and also state that this does not relieve the auditor of the requirement to obtain sufficient appropriate audit evidence that the opening balances do not contain misstatements that materially affect the current period’s financial statements. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, they must express a qualified or disclaimed opinion on the financial statements, as appropriate.
Quiz on “Comparative Information—Corresponding Figures and Comparative Financial Statements”:
1. Comparative information in financial statements refers to:
a) Information about the financial position of an entity for one period only.
b) Information that presents the financial results and position of an entity for one or more prior periods for comparison.
c) Information that presents the financial results and position of an entity for the current period only.
d) Information about the future financial performance of an entity.
Answer: b)
2. What are the two approaches to presenting comparative information?
a) Corresponding figures and accounting policies.
b) Comparative figures and financial ratios.
c) Comparative financial statements and accounting standards.
d) Corresponding figures and comparative financial statements.
Answer: d)
3. The auditor’s objective regarding comparative information is to:
a) Determine the accounting policies applied by the entity.
b) Verify the accuracy of the current period financial statements.
c) Evaluate whether the comparative information is presented in accordance with the applicable financial reporting framework.
d) Identify any changes in the entity’s financial position.
Answer: c)
4. Which of the following audit procedures is NOT related to comparative information?
a) Evaluating whether the comparative information agrees with the prior period’s amounts and disclosures.
b) Determining whether the accounting policies reflected in the comparative information are consistent with those applied in the current period.
c) Assessing the entity’s internal controls.
d) Ensuring that changes in accounting policies are properly accounted for and disclosed.
Answer: c)
5. When should the auditor request written representations from management?
a) Only for the current period financial statements.
b) Only for the prior period financial statements.
c) For both the current and prior period financial statements in the case of comparative financial statements.
d) Only if there have been changes in accounting policies.
Answer: c)
6. In what circumstances should the auditor modify the auditor’s opinion on the current period’s financial statements?
a) If the prior period financial statements were not audited.
b) If the current period’s figures are materially different from the corresponding figures.
c) If there is uncertainty regarding the going concern assumption.
d) If the auditor is unable to obtain sufficient appropriate audit evidence.
Answer: b)
7. If the auditor identifies a material misstatement in the prior period financial statements, the auditor should:
a) Revise the prior period financial statements.
b) Express a qualified or adverse opinion on the current period financial statements.
c) Request management to disclose the misstatement in the current period financial statements.
d) Conduct additional audit procedures to verify the misstatement.
Answer: b)
8. When can the auditor include an Emphasis of Matter paragraph in the auditor’s report?
a) When there are unresolved matters from the prior period financial statements.
b) When the entity has changed its accounting policies.
c) When there is a significant event that affects the entity’s financial position.
d) When the auditor’s opinion is unmodified.
Answer: a)
9. If the prior period financial statements were audited by a predecessor auditor, the current auditor should disclose:
a) The type of opinion expressed by the predecessor auditor.
b) Any disagreements between the current auditor and the predecessor auditor.
c) The financial statements of the prior period.
d) The reason for changing auditors.
Answer: a)
10. If the prior period financial statements were not audited, the auditor should:
a) Express an adverse opinion on the current period financial statements.
b) Request management to prepare audited financial statements for the prior period.
c) State in the auditor’s report that the prior period financial statements were not audited.
d) Express a qualified opinion on the current period financial statements.
Answer: c)
Additional questions:
11. Which of the following best describes corresponding figures in comparative information?
a) Comparative information where prior period amounts and disclosures are included as an integral part of the current period financial statements.
b) Comparative information where prior period amounts and disclosures are presented separately from the current period financial statements.
c) Comparative information that only includes financial ratios for the prior period.
d) Comparative information that is not required in financial statements.
Answer: a)
12. The auditor’s responsibility for comparative information includes:
a) Preparing the comparative financial statements on behalf of the entity.
b) Ensuring that the accounting policies of the entity are consistent with the prior period.
c) Obtaining sufficient appropriate audit evidence about whether the comparative information is presented in accordance with the applicable financial reporting framework.
d) Reporting on the future financial performance of the entity.
Answer: c)
13. What is the level of detail presented in the corresponding figures?
a) It is dictated by the relevance to the current period figures.
b) It is dictated by the auditor’s opinion on the financial statements.
c) It should match the level of detail in the financial statements of the current period.
d) It is not relevant to the evaluation of the financial statements.
Answer: a)
14. Which audit procedure is performed to ensure that changes in accounting policies are properly accounted for and disclosed?
a) Evaluating the classification of comparative information.
b) Requesting written representations from management.
c) Verifying whether the accounting policies reflected in the comparative information are consistent with those applied in the current period.
d) Assessing the entity’s internal controls.
Answer: c)
15. In the auditor’s report, if there is an unresolved matter from the prior period, which paragraph should refer to the effects on the comparability of the current and corresponding figures?
a) Basis for Modification paragraph.
b) Emphasis of Matter paragraph.
c) Auditor’s Responsibility paragraph.
d) Management’s Responsibility paragraph.
Answer: b)
16. When should the auditor express a qualified or adverse opinion on the current period financial statements?
a) If the prior period financial statements were not audited.
b) If the auditor identifies a material misstatement in the current period financial statements.
c) If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances.
d) If the auditor identifies a material misstatement in the prior period financial statements.
Answer: d)
17. What action should the auditor take if the prior period financial statements were audited by a predecessor auditor?
a) Modify the current period financial statements.
b) Obtain written representations from management.
c) Include an Other Matter paragraph in the current report.
d) Request the predecessor auditor to re-audit the prior period financial statements.
Answer: c)
18. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, what opinion should the auditor express?
a) Unmodified opinion.
b) Qualified opinion.
c) Adverse opinion.
d) Disclaimer of opinion.
Answer: b)
19. The auditor’s report on comparative financial statements must refer to:
a) Each period for which financial statements are presented.
b) The current period financial statements only.
c) The prior period financial statements only.
d) The financial reporting framework applied by the entity.
Answer: a)
20. When the prior period financial statements were not audited, the auditor’s responsibility includes:
a) Auditing the prior period financial statements retrospectively.
b) Evaluating the internal controls of the prior period.
c) Obtaining sufficient appropriate audit evidence regarding the opening balances.
d) Requesting management to engage a new predecessor auditor.
Answer: c)
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