Other information in annual reports under AU-C 720

• Determine with management which documents make up the annual report
• Perform the AU-C 720.16 and .17 reading and comparison
• Respond to a material misstatement of the other information
• Draft the Other Information section required by AU-C 720.24

Scope and definitions

AU-C 720, from SAS 137, applies for audits of financial statements for periods ending on or after December 15, 2021. AU-C 720.12 defines the terms:

• Annual report: a document or combination of documents, typically prepared annually under law, regulation or custom, that gives owners or similar stakeholders information on the entity's operations and financial results, and that contains, accompanies or incorporates by reference the financial statements and your report. Annual reports of governments and charitable organizations that are available to the public are included.
• Other information: financial or nonfinancial information, other than the statements and your report, in the annual report.
• Misstatement of the other information: the other information is incorrectly stated or otherwise misleading.

A private company that hands its lender only the audited statements has no annual report. A nonprofit that publishes an annual report with a program summary, donor list and financial highlights alongside the audited statements does.

Obtaining the documents

AU-C 720.13 requires you to:

• Determine, through discussion with management, which documents make up the annual report and their planned issuance, and obtain management's written acknowledgment.
• Arrange to obtain the final versions on a timely basis, before the report date if possible.
• When some documents will not be available until after the report date, request a written representation that management will provide the final versions when available and before issuance.

AU-C 720.14 requires appropriate action if the entity issues the documents without giving you the final version first.

Reading and considering

AU-C 720.16 requires you to read the other information and consider whether a material inconsistency exists with the financial statements. As the basis, compare selected amounts or items intended to be the same as, to summarize, or to give more detail about, amounts in the statements. AU-C 720.17 requires you to stay alert for inconsistencies with your knowledge from the audit and for material misstatements of fact or misleading information. AU-C 720.18 states you are not responsible for searching for omitted information or for completeness.

In practice, tick every number in the other information that comes from or summarizes the statements, and read the narrative against what you know: a letter saying "record membership growth" when your revenue testing showed member counts falling is an inconsistency with audit knowledge.

Responding

If a material inconsistency appears to exist, AU-C 720.19 requires you to discuss it with management and do other procedures as needed to conclude whether the other information is misstated, whether the statements are misstated, or whether your understanding needs updating. If the statements are misstated, other AU-C sections govern (AU-C 720.23).

If the other information is materially misstated, AU-C 720.20 requires you to request correction; if management refuses, take it to those charged with governance. If it is still uncorrected and was obtained before the report date, AU-C 720.21 requires you to consider the report implications and tell governance how you will address it, withhold the report, or withdraw where possible. For information obtained after the report date, AU-C 720.22 requires appropriate action considering your legal rights and obligations.

The report section

AU-C 720.24 requires a separate "Other Information" section when, at the report date, you have obtained all of the other information whose composition management acknowledged. It states that management is responsible for the other information; identifies it and says it excludes the statements and your report; says your opinion does not cover it and you express no opinion or assurance on it; describes your responsibility to read and consider it; says you must describe any uncorrected material misstatement; and, if one exists, describes it.

AU-C 720.15 requires communication with governance about your responsibility, procedures and results. AU-C 705.30 removes the section when you disclaim. AU-C 720.26 requires the file to hold the procedures and the final version of the other information you read.

Common gaps

• No written acknowledgment of what makes up the annual report.
• Report issued with an Other Information section that names documents you never received.
• Draft annual report tick-marked, final version never compared.

See the AU-C 720 page and the report issuance checklist.

Riverbend Food Bank: the annual report highlights page