Reports on Components of a Financial RepReports on Components of a Financial Report

Reports on Components of a Financial Report

27 The auditor may be requested to express an opinion on one or more components of a financial report, for example, a single financial statement such as a balance sheet, accounts receivable, inventory, an employee’s bonus calculation or a provision for income taxes. The component might be prepared to meet the financial information needs of specific users and have limited distribution, or may be intended to meet the information needs of a wide range of users and, therefore, prepared in accordance with the relevant requirements of an applicable financial reporting framework. This type of engagement may be undertaken as a separate engagement or in conjunction with an audit of the entity’s financial report (ASA 700 contains mandatory requirements and explanatory guidance in relation to the auditor’s other reporting responsibilities). However, this type of engagement does not result in a report on the financial report taken as a whole and, accordingly, an opinion is only expressed on the component.

28 In determining the scope of the engagement, the auditor shall consider those financial report items that are inter-related and which could materially affect the information on which the audit opinion is to be expressed.

29 Many financial report items are inter-related, for example, sales and receivables, and inventory and payables. Accordingly, when reporting on a component of a financial report, the auditor may be unable to consider the subject of the audit in isolation and, under paragraph 28 of this Auditing Standard, needs to examine certain other financial information.

30 The auditor shall consider the concept of materiality in relation to the component of a financial report being reported upon.

31 For example, a particular account balance provides a smaller base against which to measure materiality compared with the financial report taken as a whole. Consequently, the auditor’s examination will ordinarily be more extensive than if the same component were to be audited in connection with a report on the entire financial report.

32 The auditor’s report on a component of a financial report shall include a statement that indicates the applicable financial reporting framework in accordance with which the component is presented or refers to an agreement that specifies the basis of accounting used. The opinion shall state whether the component gives a true and fair view or presents fairly, in all material respects, in accordance with the applicable financial reporting framework or identified basis of accounting.

33 For the purposes of this Auditing Standard, the phrases “gives a true and fair view” or “presents fairly, in all material respects” are equivalent terms. However, the auditor’s opinion on a component of a financial report ordinarily uses the phrase “presents fairly, in all material respects”. Appendix 1 to this Auditing Standard gives an example of an auditor’s report on a component of a financial report.