SA 810 – Statement on Auditing Standards
Scope and objectives
SA 810 is a standard that provides guidance to auditors when reporting on summary financial statements. Summary financial statements are a condensed version of an entity’s financial statements and contain less detail, but still provide a structured representation of an entity’s economic resources or obligations at a point in time or changes over a period. These statements are prepared by management and are based on audited financial statements that have been prepared in accordance with other SAs.
The objectives of the auditor when reporting on summary financial statements are to determine whether to accept the engagement, form an opinion on the summary financial statements, and express that opinion through a written report that describes the basis for that opinion. In doing so, the auditor is required to evaluate the evidence obtained during the audit of the audited financial statements to determine the conclusions drawn from that evidence.
The definitions provided in SA 810 are important in understanding the requirements of the standard. Applied criteria are the criteria used by management in the preparation of the summary financial statements, while audited financial statements are financial statements that have been audited by the auditor in accordance with other SAs and from which the summary financial statements are derived. The definition of summary financial statements is also provided in the SA 810, which is a condensed version of an entity’s financial statements.
It is important to note that SA 810 is effective for engagements starting on or after April 1, 2011. Therefore, auditors should refer to this standard when reporting on summary financial statements for engagements within this scope.
Engagement Acceptance – SA 810
The auditor must ordinarily accept the engagement only when they have been engaged to conduct an audit of the financial statements from which the summary financial statements are derived. The audit of the financial statements provides the auditor with the necessary knowledge to discharge their responsibilities in relation to the summary financial statements.
Before accepting the engagement, the auditor must determine whether the applied criteria for preparing the summary financial statements are acceptable. If established criteria for the preparation of summary financial statements do not exist, management may develop the criteria based on practice in a particular industry. Factors that may affect the auditor’s determination of the acceptability of the applied criteria include the nature of the entity, the purpose of the summary financial statements, and the information needs of the intended users of the summary financial statements.
Management is responsible for determining the information that needs to be reflected in the summary financial statements so that they are consistent, in all material respects, with or represent a fair summary of the audited financial statements. The criteria for the preparation of summary financial statements may be established by an authorized or recognized standards setting organization or by law or regulation.
The auditor must also obtain management’s agreement that it acknowledges and understands its responsibility for the preparation of the summary financial statements in accordance with the applied criteria, to make the audited financial statements available to the intended users of the summary financial statements without undue difficulty, and to include the auditor’s report on the summary financial statements in any document that contains the summary financial statements and that indicates that the auditor has reported on them.
If the auditor concludes that the applied criteria are unacceptable or is unable to obtain the agreement of management, the auditor shall not accept the engagement to report on the summary financial statements unless required by law or regulation to do so. The auditor’s report on the summary financial statements shall not indicate that the engagement was conducted in accordance with this SA if the engagement was conducted in accordance with such law or regulation.
Nature of Procedures
The auditor is required to evaluate whether the summary financial statements disclose their summarized nature and identify the audited financial statements. When summary financial statements are not accompanied by the audited financial statements, the auditor should evaluate whether they describe clearly from whom or where the audited financial statements are available or the law/regulation that specifies that the audited financial statements need not be made available to the intended users.
The auditor is also required to evaluate whether the summary financial statements adequately disclose the applied criteria and whether they agree with or can be recalculated from the related information in the audited financial statements. Additionally, the auditor should evaluate whether the summary financial statements are prepared in accordance with the applied criteria and contain the necessary information at an appropriate level of aggregation to not be misleading.
Finally, the auditor should evaluate whether the audited financial statements are available to the intended users of the summary financial statements without undue difficulty, unless law or regulation provides that they need not be made available and establishes the criteria for the preparation of the summary financial statements. The evaluation process for this factor considers whether the summary financial statements clearly describe from whom or where the audited financial statements are available, whether the audited financial statements are on public record, or whether management has established a process to obtain ready access to the audited financial statements.
Form of Opinion
An auditor should use when expressing an unmodified opinion on summary financial statements. If the auditor has concluded that an unmodified opinion is appropriate, the opinion should use one of two phrases unless required otherwise by law or regulation. The two phrases are:
(a) “The summary financial statements are consistent, in all material respects, with the audited financial statements, in accordance with [the applied criteria].”
(b) “The summary financial statements are a fair summary of the audited financial statements, in accordance with [the applied criteria].”
If the law or regulation prescribes different wording for the opinion on summary financial statements, the auditor should apply the procedures described in paragraph 8 and any further procedures necessary to enable the auditor to express the prescribed opinion. The auditor should also evaluate whether users of the summary financial statements might misunderstand the auditor’s opinion on the summary financial statements and, if so, whether additional explanation in the auditor’s report on the summary financial statements can mitigate possible misunderstanding.
If the auditor concludes that additional explanation in the auditor’s report on the summary financial statements cannot mitigate possible misunderstanding, the auditor should not accept the engagement unless required to do so by law or regulation. If the auditor conducts the engagement in accordance with such law or regulation, the auditor’s report on the summary financial statements should not indicate that the engagement was conducted in accordance with this SA.
Timing of Work and Events Subsequent to the Date of the Auditor’s Report on the Audited Financial Statements
The auditor’s report on the summary financial statements may be dated later than the date of the auditor’s report on the audited financial statements. In such cases, the auditor’s report on the summary financial statements must include a statement that the summary financial statements and audited financial statements do not reflect the effects of events that occurred subsequent to the date of the auditor’s report on the audited financial statements that may require adjustment of or disclosure in the audited financial statement
SA 810 explains that the procedures described in the standard are often performed during or immediately after the audit of the financial statements. If the auditor reports on the summary financial statements after the completion of the audit of the financial statements, the auditor is not required to obtain additional audit evidence on the audited financial statements, or report on the effects of events that occurred subsequent to the date of the auditor’s report on the audited financial statements since the summary financial statements are derived from the audited financial statements and do not update them.
SA 810 also notes that if the auditor becomes aware of facts that existed at the date of the auditor’s report on the audited financial statements, but of which the auditor previously was unaware, the auditor should not issue the auditor’s report on the summary financial statements until the auditor’s consideration of such facts in relation to the audited financial statements in accordance with SA 5604 has been completed.
Auditor’s Report on Summary Financial Statements
These elements include a clear indication that the report is the work of an independent auditor, an addressee, an introductory paragraph that identifies the summary financial statements, a description of management’s responsibility for the summary financial statements, a statement that the auditor is responsible for expressing an opinion, a clear expression of the auditor’s opinion, the auditor’s signature and registration/membership numbers, the date and place of the auditor’s report, and a statement that the summary financial statements do not contain all the disclosures required by the financial reporting framework applied in the preparation of the audited financial statements.
The auditor’s report on the summary financial statements must also evaluate the appropriateness of the addressee, and should be dated no earlier than the date on which the auditor has obtained sufficient appropriate evidence to base the opinion, including evidence that the summary financial statements have been prepared and those with the recognized authority have taken responsibility for them.
If the auditor’s report on the audited financial statements contains a qualified opinion, an Emphasis of Matter paragraph, or an Other Matter paragraph, but the auditor is satisfied that the summary financial statements are consistent with or a fair summary of the audited financial statements, the auditor’s report on the summary financial statements should also include a description of the basis for the qualified opinion, Emphasis of Matter paragraph, or Other Matter paragraph in the auditor’s report on the audited financial statements, and the effect of these on the summary financial statements.
If the auditor’s report on the audited financial statements contains an adverse opinion or a disclaimer of opinion, the auditor’s report on the summary financial statements should state that fact, describe the basis for that opinion, and state that it is inappropriate to express an opinion on the summary financial statements.
Finally, the financial statements are not consistent with or are not a fair summary of the audited financial statements, the auditor’s report on the summary financial statements should include a modified opinion, which describes the nature and extent of the modification.
Restriction on Distribution or Use or Alerting Readers to the Basis of Accounting
The considerations an auditor should take when dealing with financial statements that contain comparatives, which are amounts or information included in the financial statements for one or more prior periods.
If the audited financial statements have comparatives, but the summary financial statements do not, the auditor should assess whether it is reasonable to omit the comparatives in the summary financial statements, based on the circumstances of the engagement. For example, the auditor might consider the nature of the summary financial statements and the intended users, as well as any applicable accounting standards or criteria. If the auditor determines that the omission of comparatives is unreasonable, they must consider the impact of this on their report on the summary financial statements.
On the other hand, if the audited financial statements have comparatives, it is generally presumed that the summary financial statements will also have comparatives. The comparatives in the audited financial statements may be considered corresponding figures or comparative financial information. This is important because the auditor’s report on the financial statements, including any comparatives, can affect the overall opinion of the financial statements.
If the summary financial statements contain comparatives that were reported on by another auditor, the auditor must also include the matters required by SA 710 (which provides guidance on comparative information) in their report on the summary financial statements. This ensures that the users of the summary financial statements are aware of any limitations or issues related to the comparatives.
Ultimately, the reasonableness of omitting comparatives in the summary financial statements will depend on the specific circumstances of the engagement. The auditor should consider factors such as the nature and objective of the summary financial statements, the criteria applied, and the information needs of the intended users when making their determination.
Unaudited Supplementary Information Presented with Summary Financial Statements
The auditor’s responsibility when unaudited supplementary information is presented along with summary financial statements.
The auditor must evaluate whether it is clearly differentiated from the summary financial statements. The purpose of this evaluation is to ensure that users of the financial statements are aware that the supplementary information has not been audited and is not included in the scope of the auditor’s report. If the auditor determines that the unaudited information is not clearly differentiated from the summary financial statements, they must ask management to change the presentation of the information to make the differentiation clear.
If management refuses to change the presentation, the auditor must disclose in their report on the summary financial statements that the unaudited information is not covered by their report. This is important to ensure that users of the financial statements understand the limitations of the audit and the scope of the auditor’s opinion.
SA 700 (Revised) provides guidance on how to deal with unaudited supplementary information that is presented with audited financial statements. The guidance can be adapted as necessary to evaluate the presentation of such information in the summary financial statements. This guidance may be helpful to auditors when evaluating the presentation of the unaudited supplementary information in the summary financial statements.
The auditor has a responsibility to ensure that users of the summary financial statements are aware of any unaudited supplementary information and its scope. The auditor must evaluate the presentation of such information and request management to change the presentation if necessary. If management refuses to change the presentation, the auditor must disclose the limitation in their report on the summary financial statements. The guidance in SA 700 (Revised) can be used to evaluate the presentation of such information.
Other Information in Documents Containing Summary Financial Statements
The financial statements are presented in a document, there may be other information included in that document, such as management’s discussion and analysis (MD&A), governance statements, or other supplementary information. The auditor has a responsibility to read this other information to check for any material inconsistencies between the summary financial statements and the other information.
If the auditor identifies a material inconsistency between the summary financial statements and the other information, they must determine which information needs to be revised. This determination is based on the nature and extent of the inconsistency and the auditor’s professional judgment. For example, if the inconsistency relates to a significant event that occurred after the date of the summary financial statements, the auditor may decide that the other information needs to be revised to reflect the impact of the event.
If the auditor determines that the other information needs to be revised, they must discuss the matter with management. The auditor should communicate the nature and extent of the inconsistency and the proposed revisions to management and seek their agreement to make the revisions. If management refuses to make the revisions, the auditor may need to modify their auditor’s report on the summary financial statements to include an explanatory paragraph regarding the material inconsistency.
SA 720 (Revised) provides guidance and requirements for the auditor’s responsibilities related to other information in a financial statement audit engagement. This guidance includes requirements to read the other information, perform procedures to evaluate the reliability of the other information, and communicate any material inconsistencies to management. The auditor should adapt this guidance as necessary to fulfil their responsibilities related to other information in a document containing summary financial statements.
Auditor Association
The auditor’s responsibility if the entity plans to reference the auditor’s name in a document containing summary financial statements. The auditor needs to ensure that the related auditor’s report is included in the document if the entity plans to reference the auditor’s name, and if management refuses to do so, the auditor needs to take appropriate actions to prevent the inappropriate association of the auditor with the summary financial statements.
The appropriate actions that the auditor may take include informing the intended users and other known third-party users of the inappropriate reference to the auditor. The course of action depends on the auditor’s legal rights and obligations, so the auditor may consider seeking legal advice in some cases.
If the auditor is not engaged to report on the summary financial statements, but the entity plans to make a statement in a document that refers to the auditor and the fact that summary financial statements are derived from the financial statements audited by the auditor, the auditor needs to ensure that the reference is made in the context of the auditor’s report on the audited financial statements and that the statement does not give the impression that the auditor has reported on the summary financial statements. If these conditions are not met, the auditor needs to request management to change the statement or not refer to the auditor in the document. If management does not comply, the auditor needs to take appropriate actions to prevent the inappropriate reference to the auditor.
Engagements to Report on Summary Financial Statements
The auditor can only accept an engagement to report on summary financial statements if they have already been engaged to conduct an audit in accordance with SAs (standards on auditing) of the financial statements from which the summary financial statements are derived. However, in India, there are cases where the auditor may be required by law or regulation to report on summary financial statements for accounting periods for which they were not engaged to conduct an audit in accordance with SAs. In such cases, the word “ordinarily” has been added to cover these situations.
The second addition notes that SA 700(Revised) requires the auditor to mention the “Place of Signature” instead of the “Auditor’s Address” in the auditor’s report. Therefore, the requirement of mentioning the auditor’s address in the summary financial statements has been replaced with the place of signature.
The third addition relates to the auditor’s signature. As per SA 700 (Revised), the partner/proprietor signing the audit report needs to mention the firm registration number and membership number assigned by the Institute of Chartered Accountants of India. This requirement has been incorporated into certain objectives of SA 810.
Quiz: Engagements to Report on Summary Financial Statements
1. What are summary financial statements?
a) A detailed version of an entity’s financial statements
b) A condensed version of an entity’s financial statements
c) A report on an entity’s financial performance
d) A report on an entity’s internal controls
Answer: b)
2. What is the objective of an auditor when reporting on summary financial statements?
a) To prepare the summary financial statements
b) To determine the conclusions drawn from the audit evidence
c) To express an opinion on the summary financial statements
d) To establish the applied criteria for the preparation of the statements
Answer: c)
3. When should an auditor accept an engagement to report on summary financial statements?
a) When the auditor has conducted an audit of the financial statements from which the summary financial statements are derived
b) When the auditor has expertise in summary financial statements
c) When management requests the auditor’s involvement
d) When the auditor has conducted an audit of the summary financial statements
Answer: a)
4. What factors may affect the auditor’s determination of the acceptability of the applied criteria for summary financial statements?
a) The auditor’s personal opinion
b) The nature of the entity, the purpose of the summary financial statements, and the information needs of the intended users
c) The auditor’s familiarity with the industry
d) The auditor’s availability
Answer: b)
5. What should the auditor evaluate regarding the summary financial statements?
a) Whether they contain all the disclosures required by the financial reporting framework
b) Whether they are prepared by management
c) Whether they are consistent with the applied criteria and can be recalculated from the audited financial statements
d) Whether they replace the audited financial statements
Answer: c)
6. How should the auditor express an unmodified opinion on summary financial statements?
a) By using one of two prescribed phrases
b) By summarizing the findings of the audit
c) By providing a detailed explanation of the financial statements
d) By issuing a separate report for each financial statement
Answer: a)
7. What should the auditor consider if the auditor’s report on the audited financial statements contains a qualified opinion or an adverse opinion?
a) Whether to refuse the engagement to report on the summary financial statements
b) Whether to modify the auditor’s report on the summary financial statements
c) Whether to prepare a separate report on the audited financial statements
d) Whether to conduct a re-audit of the audited financial statements
Answer: b)
8. When can the auditor’s report on the summary financial statements be dated later than the date of the auditor’s report on the audited financial statements?
a) Never, the dates must be the same
b) When the auditor wants to make revisions to the audited financial statements
c) When events occurred subsequent to the date of the auditor’s report on the audited financial statements that may require adjustment or disclosure
d) When the summary financial statements are derived from unaudited financial statements
Answer: c)
9. What should the auditor do if the entity plans to reference the auditor’s name in a document containing summary financial statements?
a) Request management to include the auditor’s report in the document
b) Inform the intended users and other known third-party users of the inappropriate reference
c) Seek legal advice to determine the appropriate course of action
d) Disassociate entirely from the entity and the summary financial statements
Answer: b)
10. Under what circumstances can the auditor accept an engagement to report on summary financial statements?
a) When the auditor has already conducted an audit of the summary financial statements
b) When the auditor has a legal obligation to report on summary financial statements
c) Only when the auditor has been engaged to conduct an audit of the financial statements from which the summary financial statements are derived
d) When the auditor’s name is referenced in the document containing the summary financial statements
Answer: c)
Additional questions:
11. Who prepares the summary financial statements?
a) The auditor
b) The external stakeholders
c) The management of the entity
d) The regulatory authorities
Answer: c)
12. What are the responsibilities of management in relation to the summary financial statements?
a) Determining the information to be reflected in the summary financial statements
b) Conducting an audit of the summary financial statements
c) Evaluating the evidence obtained during the audit
d) Expressing an opinion on the summary financial statements
Answer: a)
13. What is the role of an auditor in reporting on summary financial statements?
a) Preparing the summary financial statements
b) Determining the applied criteria for the preparation of the statements
c) Evaluating the summary financial statements and expressing an opinion
d) Developing the regulatory framework for summary financial statements
Answer: c)
14. What are some factors that may impact the acceptability of the applied criteria for preparing summary financial statements?
a) The auditor’s personal preference
b) The auditor’s relationship with the entity’s management
c) The industry standards and regulations
d) The geographical location of the entity
Answer: c)
15. When can an auditor accept an engagement to report on summary financial statements without accepting the audit of the financial statements?
a) When the auditor has previously audited the financial statements of the entity
b) When the summary financial statements are considered insignificant
c) When the auditor is personally interested in the engagement
d) When the auditor is not available to perform the audit of the financial statements
Answer: b)
16. What should an auditor do if the applied criteria for preparing summary financial statements are unacceptable?
a) Modify the criteria to make them acceptable
b) Refuse the engagement to report on the summary financial statements
c) Proceed with the engagement and report the criteria as unacceptable
d) Request management to develop new criteria
Answer: b)
17. How should an auditor evaluate the nature and extent of modifications required in the auditor’s report on the summary financial statements?
a) Based on the auditor’s personal judgment
b) Based on the preferences of the intended users
c) Based on the materiality and significance of the modifications
d) Based on the management’s opinion
Answer: c)
18. What should an auditor do if they become aware of facts that existed at the date of the auditor’s report on the audited financial statements, but were previously unknown?
a) Issue a revised auditor’s report on the audited financial statements
b) Include the new facts in the summary financial statements
c) Delay the issuance of the auditor’s report on the summary financial statements until considering the facts
d) Ignore the new facts as they are not relevant to the audit
Answer: c)
19. What actions should the auditor take if the entity plans to make a statement in a document that refers to the auditor and the fact that summary financial statements are derived from the financial statements audited by the auditor?
a) Request management to remove the reference to the auditor from the document
b) Ensure that the reference is made in the context of the auditor’s report on the audited financial statements
c) Seek legal advice to determine the appropriate course of action
d) Report the entity to the regulatory authorities for inappropriate association
Answer: b)
20. What change has been made in relation to the auditor’s signature requirements in the context of SA 700(Revised) and SA 810?
a) The requirement to mention the auditor’s address in the summary financial statements
b) The requirement to obtain the auditor’s signature on the summary financial statements
c) The requirement to mention the auditor’s registration and membership numbers
d) The requirement to provide the auditor’s full name and contact information
Answer:c)
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