Auditors have varying responsibilities when it comes to client-prepared reports.  The auditor’s role in auditing the financial statements is clear but there are other reports that may require the auditor’s attention as well.

Company-Prepared Financial Statements and the Internal Control over Financial Reporting:

The auditor has an extensive role when it comes to the audit of the company-prepared financial statements.  Typically the financial statements will be prepared according to GAAP (Generally Accepted Accounting Principles) and will include the balance sheet, statement of income, statement of comprehensive income, statement of equity, statement of cash flows and the accompanying notes.  For these statements the auditor conducts its audit to obtain sufficient appropriate evidence to obtain reasonable assurance that the financial statements are fairly presented in accordance with GAAP in all material respects. After completing the audit, the auditor will issue an opinion on whether the financial statements fairly present, in all material aspects, the financial position, results of operations and cash flows of the company in accordance with GAAP.

The auditor’s report provides an independent perspective on the financial health of a company and this perspective is depended on by management, the audit committee and board of directors, and investors.    

Non-GAAP Financial Measures and Key Performance Indicators:

Non-GAAP financial measures include numerical measures of a company’s historical or future financial performance that may adjust GAAP amounts.  Examples of such measures are earnings before interest, taxes, depreciation, and amortization (EBITDA),adjusted, and adjusted earnings per share.  Key performance indicators could include statistical measurements, such as number or stores or number of customers, over a specified time frame, or a per item cost using numbers from the audited financial statements.  

The auditor is required to read the other information presented with the audited financial statements and to consider whether the information is materially inconsistent with the information in the audited financial statements or if there is a material misstatement of fact.  The reading requirement is significantly less work than the auditing of the financial statements. More detail regarding the requirements for other information included with the audited financial statements can be found in PCAOB (Public Company Accounting Oversight Board) Auditing Standard 2710: Other Information in Documents Containing Audited Financial Statements.  

Non-Financial Reporting Included with Audited Financial Statements:

Public companies often include several other reports with the audited financial statements, including sustainability reports, environmental, social and governance information, cybersecurity reporting, and value creation reports.  None of the reports require the involvement of the auditor. In some cases, a company may engage the auditor to provide assurance on specific information, reports and metrics, but otherwise there is no responsibility on the part of the auditor regarding this information.      

Readers of the company-prepared financial statements and other reports included with the financial statements use the information to make decisions about their involvement with a company.  These reports must be reliable, comparable, and relevant for users, including investors and stakeholders, to make informed decisions. The auditor’s role varies according to the type of information reported.  No matter the auditor’s level of involvement, the role is considered key in providing additional levels of trust and confidence for those relying on the reports.