Guide for Auditors - Auditing Summary Financial Statements STANDARD DISCUSSED.pdf

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Guide for Auditors

Auditing Summary Financial StatementsSTANDARD DISCUSSEDCAS 810, Engagements to Report on Summary Financial Statements

Guide for Auditors

Auditing Summary Financial StatementsSTANDARD DISCUSSEDCAS 810, Engagements to Report on Summary Financial Statements

Disclaimer

This guide provides non-authoritative guidance and has not been adopted, endorsed, approved or otherwise acted upon by the Auditing and Assurance Standards Board, any CPA Canada board or committee, the governing body or membership of CPA Canada or any provincial institute/Ordre. It is based on the CASs as of February 2014. Practitioners are expected to use professional judg-ment in determining whether the material in this guide is both appropriate and relevant to the circumstances of their particular engagement.

About this PublicationCPA Canada undertakes initiatives to support practitioners and businesses in the implementation of standards. This guide provides non-authoritative guid-ance for practitioners auditing summary financial statements under Canadian Auditing Standard (CAS) 810, Engagements to Report on Summary Financial Statements. CPA Canada expresses its appreciation to staff, Taryn Abate, CPA, CA, and Andrée Lavigne, CPA, CA, for preparing this guide. It has not been adopted, endorsed, approved or otherwise acted on by the Auditing and Assurance Standards Board, any CPA Canada board or committee, the govern-ing body or membership of CPA Canada or any provincial institute/Ordre.

This guide is based on the CASs as of February 2014. Auditors are expected to use professional judgment in determining whether the material in this guide is both appropriate and relevant to the circumstances of their particular engagements.

Table of Contents

Purpose and Scope of this Guide 1

Diagram: CAS 810 requirements discussed in this guide 1

Q1: What are summary financial statements? 2

Q2: Are there generally recognized criteria for preparing summary financial statements? How does this affect the audit? 2

Q3: What conditions must be satisfied and what actions must be performed before accepting an engagement to report on summary financial statements? 3

Q4: How does the auditor determine if the applied criteria are acceptable? 3

Q5: What guidance can the auditor give clients on developing the applied criteria? 4

Example 1: Note disclosure of applied criteria 5

Q6: Do summary financial statements need to have comparative information? 6

Example 2: Modification to the auditor’s report for comparative information 6

Q7: When the auditor has already reported on the audited financial statements, what additional procedures are required to complete the engagement? 7

Q8: How is an auditor’s report on summary financial statements different? 8

Example 3: Sample auditor’s report 9

Q9: Are there any differences in the auditor’s report when the financial statements are based on a special purpose framework? 11

Example 4: Modification to the auditor’s report when using a special purpose framework 11

Other resources 12

1GUIDE FOR AUDITORS | Auditing Summary Financial Statements

PURPOSE AND SCOPE OF THIS GUIDEThis Guide provides guidance to auditors who report on summary financial statements derived from an entity’s audited financial statements. It discusses areas that have been noted as difficult when:• preparing summary financial statements; and• reporting on summary financial statements in accordance with CAS 810.

The table below shows the topics Canadian Auditing Standard (CAS) 810, Engagements to Report on Summary Financial Statements, addresses with their corresponding paragraph references. The dark green sections are the topics discussed in this Guide. The columns “Questions” and “Ex.’s” show the topics covered by each question and example to facilitate navigation through the Guide.

Diagram: CAS 810 requirements discussed in this guide

CAS 810 Questions Ex.’s CAS 810 Sections and References

Engagement Acceptance

3 1 Audited financial statements Par. 5

2, 4 2, 5 1 Acceptable applied criteria Par. 6(a)

3 Management’s responsibilities Par. 6(b – c)

Procedures 7 Nature of procedures Par. 8

Reporting

Form of opinion Par. 9 – 11

Timing of work and events subsequent to the date of the auditor’s report

Par. 12 – 13

8 3 Auditor’s report on summary financial statements

Par. 14 – 19

9 4 Restriction on distribution or use or alerting readers to the basis of accounting

Par. 20

6 2 Comparitives Par. 21 – 22

Other Auditor’s

Responsibilities

Unaudited supplementary informa-tion presented with summary financial statements

Par. 23

Other information in documents contain-ing summary financial statements

Par. 24

Auditor association Par. 25 – 26

The “Questions and Ex.’s” relate to the following:

Assurance question

Accounting question

Example

2 CAS 810, Engagements to report on summary financial statements

Q1: What are summary financial statements?Paragraph 4(c) of CAS 810 defines summary financial statements as: “Histori-cal financial information that is derived from financial statements but that con-tains less detail than the financial statements, while still providing a structured representation consistent with that provided by the financial statements of the entity’s economic resources or obligations at a point in time or the changes therein for a period of time. Different jurisdictions may use different terminol-ogy to describe such historical financial information.”

Paragraph 4(b) of CAS 810 defines audited financial statements as “financial statements audited by the auditor in accordance with CASs, and from which the summary financial statements are derived.” Therefore, when this Guide refers to audited financial statements, it refers to the complete set of finan-cial statements, as determined by the requirements of the applicable finan-cial reporting framework, from which the summary financial statements are derived.

Here are some key points to remember about summary financial statements:• They are derived from audited financial statements prepared using a

general purpose or special purpose framework.• They contain less detail than audited financial statements, but are consis-

tent with their presentation.• They are reported on by the same auditors who reported on the audited

financial statements.• They are based on applied criteria that may either be mandated by regu-

lation or legislation or are developed by management.

Q2: Are there generally recognized criteria for preparing summary financial statements? How does this affect the audit?In Canada, there are currently no generally recognized criteria for preparing summary financial statements. As a result, when summary financial statements must be prepared, often either:(a) management has to develop the criteria to apply in preparing the summary

financial statements; or(b) management has to apply established criteria (for example, those set out

in legislation or regulation) that are not specific enough to determine what information should be included in the summary financial statements.

In these circumstances, determining the acceptability of the applied criteria will be more challenging and there may be a greater risk that summary financial statements may be misleading.


Q3: What conditions must be satisfied and what actions must be performed before accepting an engagement to report on summary financial statements? [CAS 810 paragraphs 5 – 7]

• The auditor must have been engaged to conduct an audit, in accordance with CASs, of the financial statements from which the summary financial statements are derived;

o The financial statements may be prepared in accordance with a gen-eral-purpose or special-purpose framework.

• The auditor shall determine whether the applied criteria are acceptable;• The auditor shall obtain the agreement of management that it acknowl-

edges and understands its responsibility: o for the preparation of the summary financial statements in accordance

with the applied criteria; o to make the audited financial statements available to the intended

users of the summary financial statements without undue difficulty. If there is a law or regulation that says the audited financial statements do not need to be made available to the intended users of the sum-mary financial statements and that law establishes the criteria for the preparation of the summary financial statements, the law or regula-tions must be described in the summary financial statements; and

o to include the auditor’s report on the summary financial statement in any document that contains the summary financial statements and indicates that the auditor has reported on them.

• The auditor and management shall agree on the form of opinion to be expressed on the summary financial statements.

Q4: How does the auditor determine if the applied criteria are acceptable? [CAS 810 paragraphs A3 – A7]

Before accepting an engagement to report on summary financial statements, the auditor shall determine whether the applied criteria are acceptable. The following elements may affect the auditors determination.• The nature of the entity.• The purpose of the summary financial statements.• The information needs of the intended users of the summary financial

statements.


• Whether the applied criteria will result in summary financial statements that are not misleading in the circumstances.

• Whether there are criteria established by an authorized or recognized standard-setting organization, or by law or regulation, that may be consid-ered acceptable, as in the case of financial statements.

• Where there are no established criteria for the preparation of summary financial statements, whether management can develop the criteria by, for example, looking at practice in a particular industry.

• Whether establishing criteria will result in summary financial statements that:

o adequately disclose their summarized nature and identify the audited financial statements;

o clearly specify (a) from whom or where the audited financial state-ments are available, or (b) the law or regulation that establishes the criteria for the preparation of the summary financial statements and states that the audited financial statements need not be made avail-able to the intended users of the summary financial statements;

o adequately disclose the applied criteria; o agree with or can be recalculated from the related information

in the audited financial statements; and o depending on the purpose of the summary financial statements,

contain the information necessary, and at an appropriate level of aggregation, so as not to be misleading in the circumstances.

Q5: What guidance can the auditor give clients on developing the applied criteria?When preparing summary financial statements, management should first look for criteria established by an authorized or recognized standard-setting orga-nization, or by law or regulation, that may be considered acceptable, as in the case of financial statements, as discussed in CAS 210, Agreeing the terms of audit engagements. Where established criteria do not exist, management may develop the criteria based on, for example, practice in a particular industry. Management will use professional judgment in developing acceptable criteria. For example, management’s criteria might specify that the summary financial statements include:• A summary financial statement for each of the financial statements in the

audited financial statements. o Consider if a summarized financial statement for each of the balance

sheet, income statement, cash flow statement or other statements included in the audited financial statements should be provided. If any of these are not provided, the basis for not including them should be described in the criteria.


• The major subtotals and totals from the audited financial statements.• Information necessary to achieve a fair summary of the audited financial

statements.• Specification of from whom or where the audited financial statements

are available.• A description of the criteria applied in the preparation of the summary

financial statements.• Information from notes to the audited financial statements dealing with

matters having a pervasive or otherwise significant effect on the summary financial statements, such as:

o going concern o contingencies o subsequent events o significant accounting policies, judgments or estimates o commitments.

Example 1: Note disclosure of applied criteria

Summary financial statements:The summary financial statements are derived from the audited financial state-ments, prepared in accordance with Canadian accounting standards for not-for-profit organizations, as at March 31, 2012 and March 31, 2011 and for the years then ended.

The preparation of these summary financial statements requires management to determine the information that needs to be reflected in them so that they are consistent in all material respects with, or represent a fair summary of, the audited financial statements.

Management prepared these summary financial statements using the following criteria:(a) the summary financial statements include a statement for each statement

included in the audited financial statements; (b) information in the summary financial statements agrees with the related

information in the audited financial statements; (c) major subtotals, totals and comparative information from the audited finan-

cial statements are included; and(d) the summary financial statements contain the information from the audited

financial statements dealing with matters having a pervasive or otherwise significant effect on the summarized financial statements.

The audited financial statements of the ABC NFPO are available upon request by contacting the Organization.


Q6: Do summary financial statements need to have comparative information? [CAS 810 paragraphs 21 – 22]

If the audited financial statements contain comparative information, there is a presumption that the summary financial statements will also contain compara-tive information.

If the audited financial statements contain comparative information, but the summary financial statements do not, the auditor shall determine whether such omission is reasonable in the circumstances of the engagement. Circumstances that may affect this determination include:• the nature and objective of the summary financial statements;• the applied criteria; and• the information needs of the intended users of the summary financial

statements.

If the summary financial statements do contain comparative information, but they were reported on by another auditor, the auditor’s report on the summary financial statements shall also contain the matters that CAS 710, Compara-tive information — corresponding figures and comparative financial statements, requires the auditor to include in the auditor’s report on the audited financial statements.

Example 2: Modification to the auditor’s report for comparative information

When comparative information is included in the summary financial statements, but was reported on by another auditor, a modification to the auditor’s report is required. An example of this modification is as follows:

Other MattersOur auditor’s report dated [date] on the audited financial statements included an Other Matter paragraph drawing attention to the fact that the financial statements of ABC Company for the year ended March 31, 20X0 were audited by other auditors who expressed an unmodified opinion on those statements on [date]. Such auditors also audited the summary financial statements of ABC Company for the year ended March 31, 20X0 and expressed an unmodified opinion on those summary financial statements on [date].


Q7: When the auditor has already reported on the audited financial statements, what additional procedures are required to complete the engagement? [CAS 810 paragraph 8]

CAS 810 requires that the auditor has already reported on the audited financial statements when performing an engagement to report on the same entity’s summary financial statements. Paragraph 8 of CAS 810 requires specific procedures to be performed, and any other procedures that the auditor may consider necessary, as the basis for the auditor’s opinion on the summary financial statements.

The required procedures are described in each bullet point in the table below, which also provides some examples of disclosures related to the procedures.

Procedures performed should be documented so that, in accordance with CAS 230, Audit Documentation, the documentation is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand:(a) the nature, timing and extent of procedures performed to comply with

the CASs and applicable legal regulatory requirements;(b) The results of the audit procedures performed, and the audit evidence

obtained; and(c) Significant matters arising during the audit, the conclusions reached

thereon, and significant professional judgments made in reaching those conclusions.

Procedures Example note disclosure (if applicable)

• Compare the summary financial state-ments with the related information in the audited financial statements to determine whether the summary financial state-ments agree with, or can be recalculated from, the related information in the audited financial statements.

• Evaluate, in view of the purpose of the summary financial statements, whether the summary financial statements contain the information necessary, and are at an appropriate level of aggregation, so as not to be misleading in the circumstances.

• Evaluate whether the summary financial statements are prepared in accordance with the applied criteria.

• Evaluate whether the summary financial statements adequately disclose the applied criteria.

“Management prepared these summary finan-cial statements using the following criteria:(a) the summary financial statements include

a statement for each statement included in the audited financial statements;

(b) information in the summary financial statements agrees with the related infor-mation in the completed set of audited financial statements;

(c) major subtotals, totals and comparative information from the audited financial statements are included; and

(d) the summary financial statements contain the information from the audited financial statements dealing with matters having a pervasive or otherwise significant effect on the summary financial statements.”


Procedures Example note disclosure (if applicable)

• Evaluate whether the summary financial statements adequately disclose their sum-marized nature and identify the audited financial statements

“The summary financial statements are derived from the audited financial state-ments, prepared in accordance with Canadian accounting standards for not-for-profit orga-nizations, as at March 31, 2012, and March 31, 2011, and for the years then ended.”

• When the summary financial statements are not accompanied by the audited financial statements, evaluate whether they describe clearly:

o from whom or where the audited financial statements are available; or

o the law or regulation that specifies that the audited financial statements need not be made available to the intended users of the summary financial statements and establishes the criteria for the preparation of the summary financial statements.

• 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 sum-mary financial statements.

“The audited financial statements of the ABC NFPO are available on request by contacting the Organization.”

Q8: How is an auditor’s report on summary financial statements different? [CAS 810 paragraphs 14 – 19]

Some of the elements peculiar to the auditor’s report on summary financial statements have been highlighted below.

Introductory Paragraph• If the date of the auditor’s report on the summary financial statements is

later than the date of the auditor’s report on the audited financial state-ments, a statement should be included indicating that the summary finan-cial statements and the audited financial statements do not reflect the effects of events subsequent to the date of the auditor’s report on the audited financial statements. If the date of the auditor’s report on the summary financial statements is the same as the date of the auditor’s report on the audited financial statement, no such statement is required.


• A statement indicating that the summary financial statements do not contain all of the disclosures required by the financial reporting framework applied in the preparation of the audited financial statements and that reading the summary financial statements is not a substitute for reading the audited financial statements.

Management’s Responsibility• An explanation that management is responsible for the preparation of the

summary financial statements in accordance with the applied criteria; note that the report would not state that the statements are presented in accor-dance with a financial reporting framework as in the auditor’s report on the audited financial statements.

Auditor’s Responsibility• An explanation that the auditor is responsible for expressing an opinion

on the summary financial statements based on procedures conducted in accordance with CAS 810; note that the report would not state that the work was performed in accordance with Canadian generally accepted auditing standards as in the auditor’s report on the audited financial statements.

Opinion Paragraph• A description of the applied criteria in the opinion paragraph or a reference

to the financial statement note describing the criteria. The criteria should not be described by reference to one of the financial reporting frame-works in the CPA Canada Handbook – Accounting as these frameworks are designed for complete sets of financial statements.

Example 3: Sample auditor’s report

REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY FINANCIAL STATEMENTS[Appropriate Addressee]

The accompanying summary financial statements, which comprise the summary balance sheet as at December 31, 20X1, the summary income statement, the summary statement of changes in equity and the summary cash flow state-ment for the year then ended, and related notes, are derived from the audited financial statements of ABC Company for the year ended December 31, 20X1.


We expressed an unmodified audit opinion on those financial statements in our report dated February 15, 20X2. [Those finan-cial statements, and the summary financial state-ments, do not reflect the effects of events that occurred subsequent to the date of our report on those financial statements.]

The summary financial statements do not contain all the disclosures required by [describe financial reporting framework applied in the preparation of the audited financial statements of ABC Company]. Reading the summary financial state-ments, therefore, is not a substitute for reading the audited financial statements of ABC Company.

Management’s Responsibility for the Summary Financial StatementsManagement is responsible for the preparation of a summary of the audited financial statements in accordance with [describe established criteria];

Auditor’s ResponsibilityOur responsibility is to express an opinion on the summary financial statements based on our procedures, which were con-ducted in accordance with Canadian Auditing Standard (CAS) 810, Engagements to report on summary financial statements.

OpinionIn our opinion, the summary financial statements derived from the audited finan-cial statements of ABC Company for the year ended December 31, 20X1 are a fair summary of those financial statements, in accordance with [describe established criteria or refer to Note X].

[Auditor’s signature][Date of the auditor’s report][Auditor’s address]

Insert applicable reference to the applied criteria.

Either describe the criteria here or refer to the finan-cial statement notes (e.g., management is responsi-ble for the preparation of a summary of the audited financial statements on the basis described in Note X).

Be sure to reference the applied criteria here. Do NOT state Canadian GAAP!

Extra sentence only required if date of audi-tor’s report on summary financial statements differs from the date on the auditor’s report on the financial statements


Q9: Are there any differences in the auditor’s report when the financial statements are based on a special purpose framework? [CAS 800 paragraph 14, CAS 810 paragraph 20]Yes. Paragraph 14 of CAS 800 requires the auditor’s report on financial state-ments prepared in accordance with a special purpose framework to include an Emphasis of Matter paragraph alerting users of the auditor’s report that the financial statements are prepared in accordance with a special purpose framework and that, as a result, the financial statements may not be suitable for another purpose.

Paragraph 20 of CAS 810 also indicates that, when distribution or use of the auditor’s report on the audited financial statements is restricted, or the audi-tor’s report on the audited financial statements alerts readers that the audited financial statements are prepared in accordance with a special purpose frame-work, the auditor shall include a similar restriction or alert in the auditor’s report on the summary financial statements.

Example 4: Modification to the auditor’s report when using a special purpose framework

Emphasis of MatterOur auditor’s report dated [date] on the audited financial statements included an Emphasis of Matter paragraph, drawing attention to the note to the financial statements that describes the basis of accounting. The audited financial state-ments are prepared to assist ABC Company to meet the requirements of Regu-lator DEF. As a result, the audited financial statements may not be suitable for another purpose. Because the summary financial statements are derived from the audited financial statements, the summary financial statements also may not be suitable for another purpose.


Other resources• Reporting Implications of New Auditing and Accounting Standards,

Issue No. 11 (January 2014, Q&A 2(h), pp. 50 – 54).• CPA Canada Handbook, Canadian Auditing Standard 810, Engagements

to Report on Summary Financial Statements and Application and Other Explanatory Material

http://www.frascanada.ca/canadian-auditing-standards/resources/reference-material/item50999.pdf

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