Specific Independent Auditing Standard No.19 - Other Information Disclosed with Audited Financial St

Specific Independent Auditing Standard No.19 - Other Information Disclosed with Audited Financial Statements Chapter 1 General provisions Article 1 This standard is prepared in accordance with the General Independent Auditing Standard to establish standards and to define the relevant responsibility of Certified Public Accountants ("CPAs") on considering other information disclosed with audited financial statements and to ensure a high standard of professional work. Article 2 The term "other information" in this standard refers to accounting or non-accounting information other than the information in the audited financial statements which is disclosed by an entity, according to relevant laws and regulations or general practice, in documents such as annual reports and prospectuses etc. Article 3 Unless otherwise specified, CPAs should refer to this standard in performing audit work other than the audit of financial statements. Chapter 2 General principles Article 4 The purpose of an audit of financial statements is to express an audit opinion on the legitimacy and fairness of the entity’s financial statements and the consistency of the accounting treatments. The CPA does not have the responsibility to express an opinion specifically on the appropriateness of the disclosure of other information. If the client specifically requires a review of other information, the CPA should consider his own ability and the audit risk, contract the terms under a separate engegement letter and follow the requirements of the relevant independent auditing standards. Article 5 The credibility of the audited financial statements may be undermined by inconsistencies between the other information and the financial statements or by misstatements of the other information. The CPA should pay attention to this regard. Article 6 The CPA should obtain and read the other information at the appropriate time and take appropriate action. The entity should promptly provide the CPA with the other information to be disclosed with the audited financial statements. Chapter 3 Material inconsistencies and the actions to be taken Article 7 The term "material inconsistency" refers to a contradiction between the other information and the relevant information in the audited financial statements. The inconsistency may raise the CPA’s doubt about the audit conclusions and the audit opinion. Inconsistencies normally include: (1) data and narratives in the other information being inconsistent with the relevant information in the audited financial statements; (2) the bases of preparation of items in the other information being inconsistent with those of the relevant items in the audited financial statements; and (3) explanations of the impact on data in the other information being inconsistent with those of the relevant data in the audited financial statements. Article 8 If there may be material inconsistencies between the other information and the audited financial statements, the CPA should consider their impact and discuss with the entity’s management. If necessary, the CPA should inform the entity’s management of his opinion in writing. Article 9 If material inconsistencies do exist, the CPA should request the entity to revise the financial statements or the other information. Article 10 If the audited financial statements require a revision but the entity refuses to make the revision, the CPA should express a qualified opinion or an adverse opinion based on the extent of impact of the events to be revised on the financial statements. Article 11 If the other information requires a revision but the entity refuses to make the revision, the CPA should, depending on the nature and significance of the inconsistencies, determine whether to add an explanation after the opinion paragraph in the audit report describing the material inconsistencies. Alternatively, the CPA should consider taking the following measures and at the same time seeking legal advice: (1) refusing to issue the audit report; (2) withdrawing from the engagement; or (3) making representations at important meetings, such as the entity’s shareholders’ meetings. Chapter 4 Material misstatements and the actions to be taken Article 12 While reading the other information to identify material inconsistencies, the CPA may become aware of an apparent material misstatement of fact. A "material misstatement of fact" refers to the fact that material information in the other information, which is not related to matters reflected in the financial statements, is incorrectly disclosed. Article 13 If the CPA becomes aware that there may be a material misstatement of fact, he should discuss the matter with the entity’s management. If the CPA still considers that there is a material misstatement of fact after the discussion, he should require the entity’s management to consult with third parties such as lawyers etc, and should study and evaluate the consultation advice. Article 14 If a material misstatement of fact does exist, the CPA should request the entity to make a revision. If the entity refuses to make the revision, the CPA should inform the entity’s most senior management in writing of his concern regarding the other information, and should take appropriate action after seeking legal advice. Chapter 5 Article 15 The CPA should discuss with the entity’s management the ways to obtain the other information before the date of the audit report, so that he can promptly and comprehensively read the other information to be disclosed with the audited financial statements. Article 16 If not all the other information is available prior to the date of the audit report, the CPA should obtain and read the other information at the earliest possible opportunity after the date of the audit report. Article 17 On reading the other information obtained after the date of the audit report, if the CPA identifies a material inconsistency or an apparent material misstatement of fact, the CPA should request the entity to revise the audited financial statements or the other information. When revision of the audited financial statements is necessary, the CPA should take action in accordance with the relevant requirements in "Specific Independent Auditing Standard No.15- Subsequent Events". Article 18 When the entity agrees to revise the other information, the CPA may perform the necessary procedures, such as reviewing whether the steps taken by the entity are appropriate, to obtain reasonable assurance that the users of the financial statements are informed of the revision. If the entity refuses to revise the other information, the CPA should consider informing the entity’s most senior management in writing. The CPA should also consider seeking legal advice. Chapter 6 Supplementary provisions Article 19 The Chinese Institute of Certified Public Accountants is responsible for the interpretation of this standard. Article 20 This standard takes effect from 1 July 1999.