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Clarified Auditing Standards: Engagements to Report on Summary Financial Statements

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Feb 4th 2016
CPA Firm Support Services, LLC
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AU-C Section 810, Engagements to Report on Summary Financial Statements, discusses the auditor's responsibilities for specified procedures and reporting formats when reporting on summary financial statements derived from financial statements which he or she has audited.

Required Procedures
The auditor must first evaluate whether the criteria applied by management in the preparation of the summary financial statements are acceptable. Then, the auditor must obtain management's agreement that it acknowledges and understands its responsibilities for the summary financial statements, including its responsibility to make the audited financial statements readily available to the intended users of the summary financial statements. The audited financial statements need not accompany the summary financial statements. This requirement may normally be satisfied by a separate engagement letter or a separate section of the engagement letter obtained for the audit of the full financial statements.

A separate representation letter addressed to the auditor is required and should include representations relating to the summary financial statements.

The standard requires the following specific procedures to be performed as the basis for the auditor's opinion on the summary financial statements:

1. Evaluate whether the summary financial statements adequately disclose their summarized nature and identify the audited financial statements.

2. When the summary financial statements are not accompanied by the audited financial statements, evaluate:

  • Whether the summary financial statements clearly describe where the audited financial statements are available.
  • Whether the audited financial statements are readily available to the intended users of the summary financial statements.

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

4. Compare the summary financial statements with the related information in the audited financial statements to determine whether the summary financial statements agree with or can be recalculated from the related information in the audited financial statements.

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

6. 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 they are not misleading in the circumstances.

Reporting Requirements
In addition to standard reporting elements. AU-C Section 810:

1. Eliminates reporting on selected financial data.

2. Stipulates specific elements of the auditor's report, including management's responsibility and a description of the auditor's procedures.

3. Requires the auditor to deny an opinion on the summary financial statements when the auditor issued an adverse opinion or disclaimer of opinion on the audited financial statements. This type of report will require the auditor to:

  • State that the auditor's opinion on the audited financial statements contains an adverse opinion or disclaimer of opinion.
  • Describe the basis for that adverse or disclaimer of opinion.
  • State that, as a result of the adverse opinion or disclaimer of opinion, it is inappropriate to express, and the auditor does not express, an opinion on the summary financial statements. The auditor is not required to include the paragraph describing the procedures. However, the auditor should indicate that the report is prepared in accordance with the standards established by the American Institute of CPAs.

4. Clarifies the auditor's responsibilities related to subsequent events and subsequently discovered facts when 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 statements.

5. Includes requirements relating to comparatives, unaudited information presented with summary financial statements, and other information included in a document containing the summary financial statements and related auditor's report.

Finally, it is important to remember that an auditor can only report on summary financial statements when he or she has audited the full financial statements.

More audit resources are available on my website. A Small Audit Case Study with illustrative practice aids and working papers has recently been made available. The illustrative working papers can be purchased separately.

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