Corresponding figures are prior period data presented alongside current period financial information, providing stakeholders with a comparative perspective on an organization’s financial performance. Unlike full comparative financial statements, corresponding figures present only selected prior period numbers, typically in the form of balances or totals. Auditors are responsible for verifying the accuracy, consistency, and proper presentation of these figures to ensure they align with the prior period’s audited financial statements. This article explores the auditor’s responsibilities in reporting on corresponding figures, procedures to verify their accuracy, and how discrepancies are addressed in the audit report.
1. Understanding Corresponding Figures in Financial Reporting
Corresponding figures provide context for stakeholders to evaluate changes in financial performance and position between reporting periods.
A. Definition of Corresponding Figures
- What They Are: Corresponding figures are prior period numbers presented in the current period’s financial statements for comparison, typically shown in columns next to the current period data.
- Examples: Prior year revenue, expenses, or asset balances displayed alongside the current year’s figures without presenting full prior period financial statements.
B. Importance of Corresponding Figures
- Contextualizing Financial Performance: Corresponding figures help stakeholders identify trends, assess financial performance, and make informed decisions based on historical data.
- Ensuring Transparency: Accurate corresponding figures enhance the transparency and comparability of financial reporting.
C. Regulatory Framework for Corresponding Figures
- International Standards on Auditing (ISA) 710: Provides guidance on auditor responsibilities related to corresponding figures and comparative information.
- Legal Requirements: Many jurisdictions require corresponding figures in financial statements, making them a key focus for auditors.
2. Auditor’s Responsibilities in Reporting Corresponding Figures
Auditors are responsible for ensuring that corresponding figures are consistent with the prior period’s audited financial statements and are free from material misstatement.
A. Verifying Consistency with Prior Period Audited Financial Statements
- Reconciliation with Prior Period: Auditors ensure that corresponding figures agree with the closing balances of the prior period’s audited financial statements.
- Consistency in Accounting Policies: Auditors verify that the same accounting policies have been applied consistently across periods unless changes are disclosed and justified.
B. Assessing for Material Misstatements in Corresponding Figures
- Identifying Errors: Auditors assess whether corresponding figures contain errors or misstatements that could mislead stakeholders.
- Evaluating Restatements: If prior period errors have been corrected, auditors verify that the restated figures are accurately reflected in the current financial statements.
C. Addressing Changes in Accounting Policies or Corrections of Errors
- Disclosure of Changes: Auditors ensure that any changes in accounting policies or corrections of prior period errors are appropriately disclosed and applied retrospectively where required.
- Evaluating the Impact of Changes: Auditors assess whether changes affect the comparability and accuracy of corresponding figures.
3. Audit Procedures for Verifying Corresponding Figures
Auditors perform specific procedures to verify the accuracy, completeness, and consistency of corresponding figures in financial statements.
A. Tracing Corresponding Figures to Prior Period Audited Financial Statements
- Reconciliation with Closing Balances: Auditors trace corresponding figures back to the prior period’s audited financial statements to confirm accuracy.
- Reviewing Adjustments: Auditors verify that any adjustments to prior period figures are properly recorded and disclosed.
B. Performing Analytical and Substantive Procedures
- Analytical Procedures: Auditors perform analytical procedures to identify discrepancies or unusual trends in corresponding figures.
- Substantive Testing: Where discrepancies are identified, auditors may conduct detailed testing of prior period transactions to verify accuracy.
C. Evaluating Disclosures and Explanations
- Reviewing Financial Statement Disclosures: Auditors ensure that disclosures related to corresponding figures are accurate, complete, and comply with accounting standards.
- Assessing Management’s Explanations: Auditors evaluate whether management’s explanations for changes in corresponding figures are reasonable and supported by evidence.
4. Reporting on Corresponding Figures in the Auditor’s Report
Auditors must reflect their conclusions on corresponding figures in the audit report, especially if material misstatements or inconsistencies are identified.
A. Issuing an Unmodified Opinion on Corresponding Figures
- When Appropriate: An unmodified opinion is issued when corresponding figures are accurate, consistent with prior period audited financial statements, and free from material misstatement.
- Example Statement: “In our opinion, the corresponding figures presented in the financial statements are consistent with the prior period’s audited financial statements and are free from material misstatement.”
B. Modified Opinions Due to Issues with Corresponding Figures
- Qualified Opinion: Issued when material misstatements are identified in corresponding figures that affect the current period’s financial statements.
- Disclaimer of Opinion: Issued if auditors are unable to obtain sufficient appropriate evidence regarding corresponding figures.
- Adverse Opinion: Issued when pervasive misstatements in corresponding figures materially affect the entire financial statement.
C. Example of a Modified Auditor’s Report on Corresponding Figures
- Qualified Opinion Example: “We were unable to obtain sufficient appropriate audit evidence regarding the corresponding figures for the year ended December 31, 2022. As a result, our opinion on the financial statements for the year ended December 31, 2023, is qualified.”
5. Implications of Inaccurate Corresponding Figures
Inaccurate corresponding figures can have significant consequences for financial reporting, stakeholder trust, and regulatory compliance.
A. Impact on Financial Reporting and Stakeholder Trust
- Misleading Financial Statements: Errors in corresponding figures can lead to material misstatements in the current period’s financial statements, affecting stakeholder decision-making.
- Loss of Stakeholder Confidence: Inaccurate corresponding figures undermine the credibility of financial reporting and can erode stakeholder trust.
B. Regulatory and Legal Consequences
- Regulatory Scrutiny: Organizations may face regulatory penalties if inaccuracies in corresponding figures lead to material misstatements in financial reporting.
- Legal Liabilities: Material misstatements in corresponding figures can result in legal action from investors, creditors, or regulatory authorities.
C. Reputational and Financial Risks
- Reputational Damage: Organizations that fail to address issues with corresponding figures risk damaging their reputation and losing stakeholder trust.
- Financial Penalties: Regulatory fines, legal settlements, and decreased investor confidence can result in significant financial losses.
6. Best Practices for Auditing and Reporting Corresponding Figures
Auditors can adopt best practices to ensure the accuracy, consistency, and transparency of corresponding figures in financial statements.
A. Strengthening Internal Controls and Financial Reporting Processes
- Robust Internal Controls: Organizations should implement strong internal controls to ensure that corresponding figures are accurate and consistent with prior period audited figures.
- Management Review of Corresponding Figures: Management should thoroughly review corresponding figures for accuracy and reconcile them with prior period financial statements before the audit begins.
B. Enhancing Auditor-Management Communication
- Proactive Collaboration: Auditors should engage with management early in the audit process to discuss potential issues with corresponding figures.
- Timely Resolution of Discrepancies: Identifying and addressing discrepancies in corresponding figures early ensures smoother audits and more accurate reporting.
C. Continuous Professional Development and Training
- Ongoing Education: Auditors and accounting professionals should stay updated on changes in auditing standards, particularly ISA 710, to ensure compliance with best practices in auditing corresponding figures.
- Staying Informed on Regulatory Requirements: Continuous professional development ensures auditors are aware of regulatory changes affecting the presentation and auditing of corresponding figures.
7. The Importance of Accurate Reporting on Corresponding Figures
Auditors play a crucial role in ensuring the accuracy and consistency of corresponding figures in financial statements. By applying rigorous audit procedures, adhering to auditing standards such as ISA 710, and maintaining open communication with management, auditors help uphold the integrity of financial reporting. Accurate corresponding figures not only provide stakeholders with valuable insights into an organization’s financial performance but also foster trust and confidence in the financial reporting process. Addressing discrepancies and ensuring proper disclosure of changes in corresponding figures are essential for maintaining transparency and accountability in financial reporting.