Why comparatives figures in the financial statements are important?
Business owners will be able to compare prior year trading results and financial position to current year trading results and performed further analytical review to benchmark profitable activities for further improvement to business operations.
HM Revenue and Customs will be interested to look at the sales level, gross profit margin and the overheads expenses in comparison to last year. They will query expense items with high variance to confirm that the expenses incurred solely for the purpose of the business. They want to ensure that no personal expenses are treated as business expenses with the view to reduce tax liability.
Other financial users such as shareholders will be interested to look at the level of working capital of last year comparing to current year and so on.
Therefore, where the comparatives figures included in the financial statements are materially misstated, this fact should be reported in the auditor’s report so that the users of financial statements are aware of the fact.
What the auditors need to do if the comparatives figures are materially misstated?
If the previous year auditor’s report included a qualified opinion, disclaimer of opinion, or adverse opinion and the matter which gave rise o the modification is:
- Unresolved, and results in a modification of the auditor’s report regarding the current period figures, the auditor’s report should also be modified regarding the corresponding figures; or
- Unresolved, but does not result in a modification of the auditor’s report regarding the current period figures, the auditor’s report should be modified regarding the corresponding figures
When the prior period financial statements are not audited, the auditor should state in the auditor’s report that the corresponding figures are unaudited.
In situations where the auditor identifies that the comparatives (corresponding) figures are materially misstated, the auditor should request management to revise the corresponding figures or if management refuses to do so, appropriately modify the report.
