Given that the concise financial report is an alternative form of reporting to members under the Act, and that the Act prescribes the auditor’s reporting requirements, the AUASB takes the view that the audit of the concise financial report is treated, by auditors, as a separate engagement from the audit of the financial report for the year. This view has been taken also because procedures, additional to those performed on the financial report for the year, will be necessary when undertaking the audit of the concise financial report, particularly given that AASB 1039 requires, in certain circumstances, the inclusion of other information not found in the financial report for the year, such as discussion and analysis.

In order to avoid any misunderstandings in relation to the audit of the concise financial report, the auditor complies with the engagement acceptance requirements in ASA 810 Engagements to Report on Summary Financial Statements. The auditor agrees the terms of the audit engagement with the appropriate person(s) within the entity’s governance structure. The auditor records the terms of engagement in writing and obtains written acceptance from the appropriate person representing the entity. These terms may be included in the written terms of the audit engagement for the financial report. On recurring audits, the terms of the engagement are revised and reconfirmed as appropriate.

In addition to the specific requirements in ASA 810, the terms of engagement ordinarily include the objective and scope of the audit of the concise financial report (including the audit of discussion and analysis disclosures in that report). Such inclusions differentiate the engagement to audit the concise report from the engagement to audit the financial report.

Auditing Standards

AASB 1039 requires the concise financial report to be derived from the financial report for the year. Consequently, the audit procedures performed under the Auditing Standards by the auditor when auditing the financial report for the year are effectively performed on that information in the concise financial report that has been derived from the financial report for the year. Accordingly, there is no expectation that such audit procedures need be repeated on the relevant information in the concise financial report.

Reference to “audit” and “audit procedures” in the illustrative examples of an auditor’s report on the concise financial report (see Appendix 1) relate to all procedures that have been performed by the auditor (i.e. regarding both the financial report and the concise financial report).

When selecting and applying procedures in addition to those performed in relation to the financial report for the year, the auditor complies with ASA 810.

Under ASA 810, paragraph 8, the auditor is required to perform specified procedures. Furthermore, the auditor is required to perform additional procedures that the auditor considers necessary as the basis for the auditor’s opinion (on the concise financial report), for example, procedures addressing discussion and analysis.

Discussion and Analysis

As the inclusion of discussion and analysis is not required in the financial report for the year of some entities reporting under the Act, the audit of a concise financial report will include procedures to enable the auditor to reach a conclusion on the discussion and analysis, as part of forming an opinion on the concise financial report.

These procedures may include, a recalculation of ratios and/or trend analyses which have been included in the discussion and analysis; and ensuring that these disclosures are consistent with the information in the financial report for the year.

Whilst AASB 1039 requires that the financial statements and the specific disclosures in a concise financial report be consistent with the financial report for the year of the entity, it is recognised that because of the nature of discussion and analysis, such information (for example, a discussion and analysis of the main influences on the costs of the operations of the entity) goes beyond the type of disclosure which is included normally in the audited financial report for the year.

In such circumstances, the auditor selects and applies appropriate procedures to be able to reach a conclusion on the discussion and analysis and evaluates the results of such procedures when forming an opinion on whether the discussion and analysis complies with the requirements of AASB 1039. In selecting and applying procedures and evaluating results, the auditor exercises professional judgement in accordance with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.

Where information of a subjective and/or prospective nature is included in the discussion and analysis, either to comment on, or to augment the entity’s financial statements forming part of the concise financial report (for example, a discussion of the impact of significant economic or other events on the operations of the entity), the auditor assesses whether the inclusion of such information in the audited concise financial report has the potential to mislead users.

Under ASA 200, the auditor exercises professional judgement in assessing the inclusion of such information in the discussion and analysis. If the auditor considers that this information is overly subjective and/or prospective in nature, and/or that it is information which cannot be quantified or verified, then the auditor refers to Auditing Standard ASA 705 Modifications to the Opinion in the Independent Auditor’s Report, for requirements and guidance on modifying the auditor’s report. Depending on the circumstances, the modification to the auditor’s report may be as a result of a disagreement with the directors (those charged with governance) on the adequacy or appropriateness of disclosures in the concise financial report, or may be as a result of a limitation in scope.

In view of the matters discussed above, it is generally important that the auditor ascertains from the directors (those charged with governance), at an early stage in the audit, the extent and nature of the discussion and analysis that they intend to include in the concise financial report.

In ascertaining the extent and nature of the discussion and analysis at an early stage the auditor seeks to avert any difficulties which might otherwise arise with regard to the inclusion of such information. The directors (those charged with governance) are thus informed at that stage if, in the auditor’s opinion, there is any possibility that users of the concise financial report might be misled by the inclusion of overly subjective and/or prospective terminology and information in the discussion and analysis which forms part of the concise financial report.

Representations

Given that the Act does not require a directors’ declaration to be included in the concise report, prior to issuing the auditor’s report, under ASA 580 Written Representations, the auditor obtains a written representation from the entity’s directors which attests that the concise financial report (including, when applicable, discussion and analysis disclosures) complies with the requirements of AASB 1039 and the Act.

When reporting on a concise financial report, the auditor complies with the Act and ASA 810. As section 314 of the Act prescribes the auditor’s reporting obligations, the auditor adheres to the requirements in ASA 810, paragraph 10 in respect of the prescribed reporting obligations.

Under ASA 810, paragraph 10(b), the auditor evaluates whether the users of a concise financial report might misunderstand the auditor’s opinion. Due to the precision of wording recommended in this Guidance Statement, and the requirements of the Act, an auditor ordinarily concludes that users will not misunderstand the auditor’s opinion.

When expressing an unmodified opinion on a concise financial report prepared in accordance with the requirements of the Act, the auditor’s opinion uses one of the following phrases:

1. In our opinion, the accompanying concise financial report, including the discussion and analysis of ABC Company, complies with Accounting Standard AASB 1039 Concise Financial Reports (other than a listed entity); or
2. In our opinion, the accompanying concise financial report, complies with Accounting Standard AASB 1039 Concise Financial Reports (for a listed entity).

ASA 810, paragraph 16 lists the elements required to be included in an auditor’s report.

Modifications to the Opinion, Emphasis of Matter Paragraph, Other Matter Paragraph and Material Uncertainty Related to Going Concern Section

Under ASA 810, paragraph 19, where the auditor’s report on the financial report includes a qualified opinion, an emphasis of matter or other matter paragraph, or a material uncertainty related to going concern section, the auditor’s report on the concise financial report states this. In addition, the auditor’s report on the concise financial report describes:

1. the basis for the qualified opinion on the financial report, and the effect thereof on the concise financial report;
2. the matter referred to in the emphasis of matter or other matter paragraph or the material uncertainty related to going concern section in the financial report, and the effect thereof on the concise financial report.

Examples:

1. AASB 1039 requires the concise financial report to be derived from, and consistent with, the financial report for the year. Accordingly, modifications to the auditor’s opinion on the financial report for the year will commonly be applicable to the auditor’s opinion on the concise financial report. Certain modifications to the auditor’s opinion on the financial report for the year, however, may not be applicable to the auditor’s opinion on the concise financial report, such as those relating solely to disclosures in the notes to the financial report for the year.
2. The auditor may modify the auditor’s report relating to the concise financial report only. An example is when an auditor is of the opinion that the discussion and analysis does not comply with the requirements of AASB 1039.

Where the auditor’s report on the financial report contains an adverse or disclaimer of opinion, the auditor’s report on the concise financial report must, under ASA 810, paragraph 20:

1. state that the auditor’s report on the financial report contains an adverse opinion or disclaimer of opinion;
2. describe the basis for that adverse opinion or disclaimer of opinion; and
3. state that, as a result of the adverse opinion or disclaimer of opinion, it is inappropriate to express an opinion on the concise financial report.

Key Audit Matters

Where an auditor’s report on the financial report includes communication of key audit matters in accordance with ASA 701^[3] and the auditor is satisfied that the concise financial report is derived from and is consistent with the financial report, the auditor’s report on the concise financial report states that the auditor’s report on the financial report includes communication of key audit matters.

The auditor is not required to describe the individual key audit matters in the auditor’s report on the concise financial report. However, the auditor, using professional judgement, may include more detailed reference to key audit matters, either generically or specifically (ie by providing subheadings or descriptions). In making this determination, the auditor considers whether such inclusions are beneficial to the users understanding of the audit of the concise financial report, or whether such inclusions could be misleading if the underlying issues are not relevant to or disclosed in a similar manner in the concise financial report.

Illustration 2 of Appendix 1, demonstrates the wording used where the auditor states that the auditor’s report on the financial report includes communication of key audit matters. Illustration 3 of Appendix 1, demonstrates the wording that may be used where the auditor’s report on the concise financial report includes the key audit matters that were included in the auditor’s report on the financial report.

Other Information

Uncorrected material misstatement of other information included in financial report

Where an auditor’s report on the financial report includes a statement that describes an uncorrected material misstatement of the other information in accordance with ASA 720^[4], and the uncorrected material misstatement does not relate to matters dealt with in the information included in a document containing the concise financial report, the auditor’s report on the concise financial report states that the auditor’s report on the financial report includes a statement that describes an uncorrected material misstatement of other information; and describes the uncorrected material misstatement of other information and the effect thereof, if any, on the information included in a document containing the concise financial report.

When an uncorrected material misstatement of the other information has been identified in the auditor’s report on the financial report and that uncorrected material misstatement relates to a matter that is included in the information in a document containing the concise financial report, a material inconsistency between the concise financial report and that information may exist or the information may be misleading. The auditor discusses the inconsistency with management and determines what revisions are required and considers the implications, if any, on the auditor’s report on the concise financial report.

Information included in a document containing a concise financial report

A document that includes a concise financial report may contain some or all of the same matters encompassed in the other information included in the annual report or may include matters that are not dealt with in the other information included in the annual report.

Where information contains matters already dealt with in other information included in the annual report

Where information is included in a document that includes a concise financial report and that information deals with some or all of the other information in the annual report, the work already performed on that other information in accordance with ASA 720 may be sufficient.

The auditor reads the information included in a document containing the concise financial report, and considers whether there is a material inconsistency between that information and the concise financial report. Where a material inconsistency is identified, the auditor discusses the inconsistency with management and determines what revisions are required and considers the implications, if any, on the auditor’s report on the concise financial report.

Where information contains matters not already dealt with in other information included in the annual report

Where information is included in a document that includes a concise financial report and that information deals with matters not dealt with in other information in the annual report, the auditor may still find ASA 720 helpful and follows the guidance contained in paragraph 46 of this guidance statement.

Remuneration Report^[5]

Where a company includes a Remuneration Report in the annual directors’ report, the auditor reports thereon to members. The auditor, exercising professional judgement, may include a copy of the auditor’s report on the remuneration report with the auditor’s report on the concise financial report. Illustration 2 of Appendix 1 demonstrates the wording that may be used where the auditor’s report on the remuneration report is included in the auditor’s report of the concise financial report.

Illustrative Examples

The illustrative reports in Appendix 1 provide examples of an auditor’s report on a concise financial report.