Page 193 - CA Final PARAM Digital Book.

Part 6- SA 720

QNO Other Information Auditors Responsibility Old Course – (N20E, N21M, M23M, M23R,N23M)
127.050 TITANIUM CNO— SA720.100
GS & Co., Chartered Accountants, have been appointed Statutory Auditors of MAP Ltd. for the F.Y 2019-
20. The audit team has completed the audit and is in the process of preparing audit report. Management
of the company has also prepared draft annual report. Audit in-charge was going through the draft
annual report and observed that the company has included an item in its Annual Report indicating
downward trend in market prices of key commodities/raw material as compared to previous year.
However, the actual profit margin of the company as reported in financial statements has gone in the
reverse direction. Audit Manager discussed this issue with partner of the firm who in reply said that
auditors are not covered with such disclosures made by the management in its annual report, it
being the responsibility of the management.
Do you think that the partner is correct in his approach on this issue? Discuss with reference to relevant
Standard on Auditing the Auditor's duties with regard to reporting.
Responding When the Auditor Concludes That a Material Misstatement of the Other
Information Exists:
As per SA 720, “The Auditor’s Responsibility in Relation to Other Information” Descriptions of trends in
market prices of key commodities or raw materials is an example of amounts or other Items that may be
Included in the other information.

The auditor’s discussion with management about a material inconsistency (or other information that
appears to be materially misstated) may include requesting management to provide support for the basis
of management’s statements in the other information. Based on management’s further information or
explanations, the auditor may be satisfied that the other information is not materially misstated. For
example, management explanations may indicate reasonable and sufficient grounds for valid differences
of judgment.
Auditor’s duties with regard to reporting in the given case are given hereunder:
As per SA 720, “The Auditor’s Responsibility in Relation to Other Information”, if the auditor concludes
that a material misstatement of the other information exists, the auditor shall request management to
correct the other information. If management:
(i) Agrees to make the correction, the auditor shall determine that the correction has been made; or
(ii) Refuses to make the correction, the auditor shall communicate the matter with those charged with
governance and request that the correction be made.
Contention of the partner of the firm that auditors are not concerned with such disclosures made by the
management in its annual report, is incorrect

Examples of “Amounts” or “other items” included in the Old Course – (N19E, SM21, M21M)
QNO “other information
127.100
UNIQUE
LMP Associates, Chartered Accountants, conducting the audit of PQR Ltd., a listed Company for the year
ended 31st March 2019 is concerned with the auditor’s responsibilities relating to other information,
both financial and non-financial, included in the Company’s annual report While regarding other
information, Associates considers whether there is a material inconsistency between other information

and the financial statements. As a basis for the consideration the auditor shall evaluate their consistency,
compare selected amounts or other items in the other information with such amounts or other items in
the financial statements. Guide LMP Associates with examples of “Amounts” or “other items” that
may be included in the “other information” with reference to SA 720.
Answer Part I -- Relevant Standards & Laws
▪ SA 720 - The Auditor’s Responsibilities Relating to Other Information

Part II -- Requirements of Relevant Standards & Laws
➢ Definition of Other information –

www.auditguru.in PARAM 7.33 | P a g e