SA 720

AUDITORS RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN

DOCUMENTS CONTAINING AUDITORS FINANCIAL STATEMENTS

1. Effective Date This Standard on Auditing becomes operative for all audits relating to accounting
periods beginning on or after 1st April, 2010.

2. Introduction
i) For auditors it will be a wider role in the affairs of a company and apart from financial statements, also
to inspect other information to look for possible material inconsistencies to make the audit reports fool-
proof.
ii) It will also help auditors to go beyond receiving the evidences by valuating them on prudence
principles.

3. Objective The objective of the auditors is to respond appropriately when documents containing
audited financial statements and the auditors report thereon include other information that could
undermine the credibility of those financial statements and the auditors report.

4. Definitions
i) Other information Financial and non-financial information (other than the financial statements and
the auditors report thereon) which is included, either by law, regulation or custom, in a document
containing audited financial statements and the auditors report thereon.
ii) Inconsistency Other information that contradicts information contained in the audited financial
statements. A material inconsistency may raise doubt about the audit conclusions drawn from audit
evidence previously obtained and, possibly, about the basis for the auditors opinion on the financial
statements.
iii) Misstatement of fact Other information that is unrelated to matters appearing in the audited
financial statements that is incorrectly stated or presented which may undermine the credibility of the
document containing audited financial statements.

5. Other Information comprises of:-

i) A report by management or those charged with governance on operations.
ii) Financial summaries or highlights.
iii) Planned capital expenditures.
iv) Financial ratios.
v) Selected quarterly data.
vi) However if does not encompass:-
a. A press release or a transmittal memorandum, eg. a covering Letter with audited financial
statements and the auditors report.
b. Information contained in analyst briefings.
c. Information on entitys web site.

6. Scope Consideration Specific to Smaller Entities only if required law or regulations eg. a
document where a legal requirement exists for an accompanying report by those charged with
governance. In case of certain entities such as, Central/State governments and related government
entities (for example, agencies, boards, commissions), withdrawal from the engagement may not be an
option. In such cases the auditor may issue a report to the appropriate statutory body giving details of
the inconsistency.
7. Material Inconsistencies When management agrees to revise the inconsistencies, the auditor
shall review the steps taken by the management and ensure that the users of FS are informed of the
revision. When the management refuses to make the revisions, the auditor shall communicate this
matter to those charged with governance; and
(i) Include in the auditors report an Other Matter(s) paragraph describing the material inconsistency
(ii) Where withdrawal is legally permitted, withdraw from the engagement.
(iii) the auditor may base any decision on what further action to take on advice from the auditors legal
counsel.

8. Auditors report - When the auditor concludes that there is a material misstatement of face in the
other information which management refuses to correct, the auditor shall notify those charged with
governance of the auditors concern regarding the other information and take any further appropriate
action.

SA 720
THE AUDITORS RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN
DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS

1 Effective Date 1 st April 2010

2 Objective
3 Definition to know
4 Other Information comprises of :
5 Scope - Considerations Specific to Only if required by law or regulation and in such
Smaller Entities
Material Inconsistencies
6 Mgt agrees to revise
7 Mgt refuses to revise
8 Auditors Report
When other information is included in FS the auditor
should respond appropriately to such information
that could undermine the credibility of those FS and
audit report.
a.Other Information
b. Inconsistency
c. Misstatement of Fact
a. A report by mgt or TCWG
b. Financial summaries or highlights
c. Planned financial expenditures
d. Financial Ratios
e. Selected Quarterly data
case auditor may issue a report to the appropriate
authority giving details of inconsistency.
Auditor shall review the steps taken by mgt and
inform the users of FS
Auditor shall inform to TCWG and withdraw from
engagement if permitted, else report the other matters
describing the material inconsistency.
When mgt refuses to revise material inconsistency,
auditor shall notify TCWG and take appropriate
action .