In a recently completed investigation referred from the Stock Exchange of Hong Kong Limited, the Accounting and Financial Reporting Council (AFRC) identified an improper practice regarding audit documentation relating to the work carried out by the auditor (the Auditor) of a listed entity (the Listed Entity) on other information included in the Listed Entity’s annual report.
Requirements on obtaining and considering other information and related documentation In the case of a listed entity, Hong Kong Standard on Auditing (HKSA) 720 requires the auditor to:
• Obtain the final version of the documents comprising the annual report of an entity (including documents containing other information) prior to the date of the auditor’s report if possible, read the other information obtained from management, and consider whether there is any material inconsistency between the other information and the financial statements.
• Include in the “Other Information” section of the auditor’s report an identification of the other information, if any, obtained prior to the date of the auditor’s report and the other information, if any, expected to be obtained after the date of the auditor’s report.
• Perform the procedures required under HKSA 720 and document them in the audit documentation.
• When other information has been obtained prior to the date of the auditor’s report, include in the “Other Information” section a statement that the auditor has nothing to report or a statement describing the uncorrected material misstatement that the auditor has identified.
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• Include in the audit documentation the final version of the other information on which the auditor has performed the procedures required under HKSA 720.
There is nothing in the requirements of HKSA 720 that mandates or suggests that the only item of documentation required is the final version of the other information or that it is appropriate to remove earlier versions that comprise contemporaneous evidence of the work done at the time it was done. Furthermore, HKSA 200 explicitly requires that, in order to meet the overall objectives of the auditor, the auditor must comply with each relevant requirement in a relevant HKSA and perform any additional procedures necessary to pursue the objective in a relevant HKSA.
In an official statement, the AFRC outlined its position, saying: “Auditors should ensure that the audit documentation always meets both the requirements and objectives of the HKSAs. In complying with the documentation requirement in HKSA 720, in order to meet the objective of documentation to enable the conduct of external inspections, the auditor should include in the audit file all versions of the documents containing other information, which the auditor has obtained from management before or after the date of the auditor’s report and should not remove previous documentation that evidences work done before the date of the auditor’s report. Furthermore, the documentation should clearly indicate the date of receipt of the final version.”