HKSA 710 - Comparative Information (Condensed)

Introduction & Scope

Scope of HKSA 710

HKSA 710 deals with the auditor's responsibilities relating to comparative information in an audit of financial statements. When prior period financial statements have been audited by a predecessor auditor or were not audited, the requirements and guidance in HKSA 510 regarding opening balances also apply.

Nature of Comparative Information

The nature of comparative information depends on the applicable financial reporting framework. There are two broad approaches:

Effective Date

This HKSA is effective for audits of financial statements for periods beginning on or after 15 December 2009.

Objectives & Definitions

Objectives of the Auditor

The objectives of the auditor are:

1. To obtain sufficient appropriate audit evidence about whether the comparative information included in the financial statements has been presented, in all material respects, in accordance with the requirements for comparative information in the applicable financial reporting framework; and
2. To report in accordance with the auditor's reporting responsibilities.

Definitions

Audit Procedures

Evaluation of Comparative Information (Paragraph 7)

The auditor shall determine whether the financial statements include the comparative information required by the applicable financial reporting framework and whether such information is appropriately classified. For this purpose, the auditor shall evaluate whether:

• The comparative information agrees with the amounts and other disclosures presented in the prior period or, when appropriate, have been restated; and
• The accounting policies reflected in the comparative information are consistent with those applied in the current period or, if there have been changes in accounting policies, whether those changes have been properly accounted for and adequately presented and disclosed.

Material Misstatement in Comparative Information (Paragraph 8)

If the auditor becomes aware of a possible material misstatement in the comparative information while performing the current period audit, the auditor shall perform such additional audit procedures as are necessary in the circumstances to obtain sufficient appropriate audit evidence to determine whether a material misstatement exists.

Written Representations (Paragraph 9)

As required by HKSA 580, the auditor shall request written representations for all periods referred to in the auditor's opinion. The auditor shall also obtain a specific written representation regarding any restatement made to correct a material misstatement in prior period financial statements that affect the comparative information.

Audit Reporting – Corresponding Figures

General Rule – No Reference in Auditor's Opinion (Paragraph 10)

When corresponding figures are presented, the auditor's opinion shall not refer to the corresponding figures except in the circumstances described in paragraphs 11, 12, and 14.

Prior Period Modification Unresolved (Paragraph 11)

If the auditor's report on the prior period, as previously issued, included a qualified opinion, a disclaimer of opinion, or an adverse opinion and the matter which gave rise to the modification is unresolved, the auditor shall modify the auditor's opinion on the current period's financial statements. In the Basis for Modification paragraph, the auditor shall either:

• Refer to both the current period's figures and the corresponding figures in the description of the matter giving rise to the modification when the effects or possible effects of the matter on the current period's figures are material; or
• In other cases, explain that the audit opinion has been modified because of the effects or possible effects of the unresolved matter on the comparability of the current period's figures and the corresponding figures.

Misstatement in Prior Period Financial Statements (Paragraph 12)

If the auditor obtains audit evidence that a material misstatement exists in the prior period financial statements on which an unmodified opinion has been previously issued, and the corresponding figures have not been properly restated or appropriate disclosures have not been made, the auditor shall express a qualified opinion or an adverse opinion in the auditor's report on the current period financial statements, modified with respect to the corresponding figures included therein.

Prior Period Financial Statements Audited by a Predecessor Auditor (Paragraph 13)

If the financial statements of the prior period were audited by a predecessor auditor and the auditor is not prohibited by law or regulation from referring to the predecessor auditor's report on the corresponding figures and decides to do so, the auditor shall state in an Other Matter paragraph in the auditor's report:

• That the financial statements of the prior period were audited by the predecessor auditor;
• The type of opinion expressed by the predecessor auditor and, if the opinion was modified, the reasons therefore; and
• The date of that report.

Prior Period Financial Statements Not Audited (Paragraph 14)

If the prior period financial statements were not audited, the auditor shall state in an Other Matter paragraph in the auditor's report that the corresponding figures are unaudited.

Audit Reporting – Comparative Financial Statements

General Rule – Reference in Auditor's Opinion (Paragraph 15)

When comparative financial statements are presented, the auditor's opinion shall refer to each period for which financial statements are presented and on which an audit opinion is expressed.

Opinion Different from Previous Opinion (Paragraph 16)

When reporting on prior period financial statements in connection with the current period's audit, if the auditor's opinion on such prior period financial statements differs from the opinion the auditor previously expressed, the auditor shall disclose the substantive reasons for the different opinion in an Other Matter paragraph in accordance with HKSA 706 (Revised).

Prior Period Financial Statements Audited by a Predecessor Auditor (Paragraphs 17-18)

Paragraph 17: If the financial statements of the prior period were audited by a predecessor auditor, in addition to expressing an opinion on the current period's financial statements, the auditor shall state in an Other Matter paragraph:

• That the financial statements of the prior period were audited by a predecessor auditor;
• The type of opinion expressed by the predecessor auditor and, if the opinion was modified, the reasons therefore; and
• The date of that report, unless the predecessor auditor's report on the prior period's financial statements is reissued with the financial statements.

Paragraph 18: If the auditor concludes that a material misstatement exists that affects the prior period financial statements on which the predecessor auditor had previously reported without modification, the auditor shall:

• Communicate the misstatement with the appropriate level of management and, unless all of those charged with governance are involved in managing the entity, those charged with governance;
• Request that the predecessor auditor be informed.

If the prior period financial statements are amended, and the predecessor auditor agrees to issue a new auditor's report on the amended financial statements of the prior period, the auditor shall report only on the current period.

Prior Period Financial Statements Not Audited (Paragraph 19)

If the prior period financial statements were not audited, the auditor shall state in an Other Matter paragraph that the comparative financial statements are unaudited.

Hong Kong Local Guidance & Illustrations (Appendix 2 & Appendix 1)

Hong Kong Local Guidance & Illustrations

Hong Kong Local Guidance (Appendix 2)

In Hong Kong, the corresponding figures method of presentation is used:

• Financial statements of companies incorporated under the provisions of the Companies Ordinance are required to disclose comparative amounts as required under the applicable accounting standards.
• Appendix 16 to the Main Board Rules and Chapter 18.07(5) of the GEM Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Ltd. require financial statements of listed issuers to include comparative figures for the balance sheet, income statement, cash flow statement and statement of changes in equity for the corresponding previous period.
• 'Comparative figures' referred to by the Main Board Rules and GEM Rules refers to the corresponding figures as described in this HKSA.

Illustrations of Auditor's Reports (Appendix 1)

The HKSA provides four illustrations of independent auditor's reports:

Key Takeaways Summary

Key Takeaways Summary