8031 What is an annual report and other information

Apr-2018

CAS Guidance

For purposes of the CASs, the following terms have the meanings attributed below (CAS 720.12):

(a) Annual report – A document, or combination of documents, prepared typically on an annual basis by management or those charged with governance in accordance with law, regulation or custom, the purpose of which is to provide owners (or similar stakeholders) with information on the entity’s operations and the entity’s financial results and financial position as set out in the financial statements. An annual report contains or accompanies the financial statements and the auditor’s report thereon and usually includes information about the entity’s developments, its future outlook and risks and uncertainties, a statement by the entity’s governing body, and reports covering governance matters.

Law, regulation or custom may define the content of an annual report, and the name by which it is to be referred, for entities in a particular jurisdiction; however, the content and the name may vary within a jurisdiction and from one jurisdiction to another (CAS 720.A1).

An annual report is typically prepared on an annual basis. However, when the financial statements being audited are prepared for a period less than or more than a year, an annual report may also be prepared that covers the same period as the financial statements (CAS 720.A2).

In some cases, an entity’s annual report may be a single document and referred to by the title “annual report” or by some other title. In other cases, law, regulation or custom may require the entity to report to owners (or similar stakeholders) information on the entity’s operations and the entity’s financial results and financial position as set out in the financial statements (i.e., an annual report) by way of a single document, or by way of two or more separate documents that in combination serve the same purpose. For example, depending on law, regulation or custom in a particular jurisdiction, one or more of the following documents may form part of the annual report (CAS 720.A3):

• Management report, management commentary, or operating and financial review or similar reports by those charged with governance (for example, a directors’ report).
• Chairman’s statement.
• Corporate governance statement.
• Internal control and risk assessment reports.

An annual report may be made available to users in printed form, or electronically, including on the entity’s website. A document (or combination of documents) may meet the definition of an annual report, irrespective of the manner in which it is made available to users (CAS 720.A4).

An annual report is different in nature, purpose and content from other reports, such as a report prepared to meet the information needs of a specific stakeholder group or a report prepared to comply with a specific regulatory reporting objective (even when such a report is required to be publicly available). Examples of reports that, when issued as standalone documents, are not typically part of the combination of documents that comprise an annual report (subject to law, regulation or custom), and that, therefore, are not other information within the scope of this CAS, include (CAS 720.A5):

• Separate industry or regulatory reports (for example, capital adequacy reports), such as may be prepared in the banking, insurance, and pension industries.
• Corporate social responsibility reports.
• Sustainability reports.
• Diversity and equal opportunity reports.
• Product responsibility reports.
• Labor practices and working conditions reports.
• Human rights reports.

In Canada, the Management Discussion and Analysis (MD&A) issued by reporting issuers other than investment funds and the Management Report of Fund Performance issued by investment funds under the provisions of Canadian securities legislation, as well as equivalent documents in the public sector such as the Financial Statement Discussion and Analysis, would normally be considered to be within the scope of CAS 720. These documents are meant to complement and supplement the financial statements. If an entity issues an annual report, the annual report would also be within the scope of CAS 720 if it meets the definition set out in paragraph 12(a). [This is a Canadian-only paragraph. There is no equivalent paragraph in corresponding ISA 720.] (CAS.720 CA5A)

CAS Guidance

For purposes of the CASs, the following terms have the meanings attributed below (CAS 720.12):

(c) Other information – Financial or non-financial information (other than financial statements and the auditor’s report thereon) included in an entity’s annual report.

Appendix 1 contains examples of amounts or other items that may be included in the other information (CAS 720.A8).

In some cases, the applicable financial reporting framework may require specific disclosures but permit them to be located outside of the financial statements. As such disclosures are required by the applicable financial reporting framework, they form part of the financial statements. Accordingly, they do not constitute other information for the purpose of this CAS (CAS 720.A9).

eXtensible Business Reporting Language (XBRL) tags do not represent other information as defined in this CAS (CAS 720.A10).

Other information may include amounts or other items that are intended to be the same as, to summarize, or to provide greater detail, about amounts or other items in the financial statements, and other amounts or other items about which the auditor has obtained knowledge in the audit. Other information may also include other matters (CAS 720.5).

This CAS does not apply to (CAS 720.7):

(a) Preliminary announcements of financial information; or

(b) Securities offering documents, including prospectuses.

CAS Guidance

For purposes of the CASs, the following terms have the meanings attributed below (CAS 720.12):

(b) Misstatement of the other information – A misstatement of the other information exists when the other information is incorrectly stated or otherwise misleading (including because it omits or obscures information necessary for a proper understanding of a matter disclosed in the other information).

When a particular matter is disclosed in the other information, the other information may omit or obscure information that is necessary for a proper understanding of that matter. For example, if the other information purports to address the key performance indicators used by management, then omission of a key performance indicator used by management could indicate that the other information is misleading (CAS 720.A6).

The concept of materiality may be discussed in a framework applicable to the other information and, if so, such a framework may provide a frame of reference for the auditor in making judgments about materiality under this CAS. In many cases, however, there may be no applicable framework that includes a discussion of the concept of materiality as it applies to the other information. In such circumstances, the following characteristics provide the auditor with a frame of reference in determining if a misstatement of the other information is material (CAS 720.A7):

• Materiality is considered in the context of the common information needs of users as a group. The users of the other information are expected to be the same as the users of the financial statements as such users may be expected to read the other information to provide context to the financial statements.
• Judgments about materiality take into account the specific circumstances of the misstatement, considering whether users would be influenced by the effect of the uncorrected misstatement. Not all misstatements will influence the economic decisions of users.
• Judgments about materiality involve both qualitative and quantitative considerations. Accordingly, such judgments may take into account the nature or magnitude of the items that the other information addresses in the context of the entity’s annual report.