## CAS 4: Comparative Financial Statements — Prior Period Audited by Predecessor Auditor

### Core Scenario

When a new (current) auditor is appointed and the prior year (PY) financial statements were audited by a predecessor auditor, specific reporting obligations arise under CAS 4.

### Requirement: Other Matter (OM) Paragraph

The current auditor must include an OM Para in the audit report containing:

1. Description of audit done by predecessor auditor

2. Date of predecessor's Audit Report

3. Opinion given by predecessor auditor

4. Reason for modification (if predecessor's opinion was modified)

> The current auditor is NOT required to include an OM Para if the predecessor has already amended their old audit report.

### Approach for Comparative Financial Statements

Period	Auditor	Action
CY (e.g., FY 2025-26)	New/Current Auditor	Give opinion on CY FS
PY (e.g., FY 2024-25)	Predecessor Auditor	Include OM Para describing PY audit

OM Para must specify:

Who did the PY audit (predecessor firm)
Date of predecessor's Audit Report
Opinion given + reasons if modified

### Special Point: CY Auditor Finds Material Misstatement in PY Comparatives

Situation: PY was given an unmodified opinion by predecessor, but CY auditor discovers a material misstatement in comparative PY figures.

Step-by-step approach:

1. Inform management → Ask for amendment in the Comparative Financial Statements

2. Ask management to request predecessor auditor to re-issue an amended Audit Report for PY

3. Once amendment is made → Give opinion on CY FS (including amended comparatives)

### Miscellaneous Points

Situation	Action
PY FS were not audited at all	Include OM Para in current audit report
PY and CY auditor opinions differ on comparatives	Include OM Para specifying reason for difference

Worked example

### Example 1

Ram is appointed as auditor for FY 2025-26. FY 2024-25 was audited by predecessor auditor Mr. Sharma. Ram must include an OM Para in his audit report stating: (a) audit of FY 2024-25 was done by Mr. Sharma, (b) date of Mr. Sharma's Audit Report, (c) opinion given (e.g., unmodified), and if modified — the reason.

### Example 2

During audit of FY 2025-26 comparative statements, Ram discovers a material misstatement in PY figures. PY had an unmodified opinion from predecessor. Ram should: Step 1 — inform management and ask for amendment to comparative FS. Step 2 — ask management to request predecessor to re-issue amended Audit Report. Step 3 — after amendment, give his opinion on CY FS with corrected comparatives.

### Example 3

A company switches auditor and the PY FS were never audited at all (no predecessor). The new auditor must include an OM Para disclosing that PY figures are unaudited.

⚠️ Common exam mistakes

Confusing OM Para (Other Matter) with EOM Para (Emphasis of Matter) — OM Para is for matters not in FS but relevant to users; EOM Para is for matters already disclosed in FS
Forgetting to include the reason for modification when the predecessor's opinion was modified — this is a mandatory element of the OM Para
Thinking the current auditor must re-audit PY figures independently — the correct approach is to get the predecessor to issue an amended report
Not knowing the exception: OM Para is NOT required when the predecessor has already amended their old audit report
Assuming OM Para is optional — it is mandatory when PY was audited by a predecessor auditor

Reference:

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CAS 4: Comparative Financial Statements and Predecessor Auditor

Worked example

⚠️ Common exam mistakes