Imagine you've finished auditing the financial statements of Rajesh & Co. Pvt. Ltd. and signed the auditor's report. But the annual report also has a Chairman's speech, a five-year financial summary, and a Directors' Report. What's your job with that content? That's exactly what SA 720 answers.
SA 720 – The Auditor's Responsibilities Relating to Other Information says: you must read the other information included in the annual report and check whether it is materially inconsistent with the audited financial statements or your knowledge obtained during the audit. "Other information" means everything in the annual report except the financial statements and your own auditor's report — think Directors' Report, Chairman's Address, MD&A, financial highlights, five-year summaries, and so on. The critical word is read — SA 720 does not require you to audit or verify this other information. Your obligation is limited to reading it carefully.
Now, two situations can arise. First, a material inconsistency: the other information says something that contradicts the audited financials. For example, the Directors' Report claims profit was ₹80 lakhs, but the audited P&L shows ₹50 lakhs. Here, you ask management to correct the other information. If they refuse, you consider the implications for your report — you may need to include an Other Matter paragraph or even withdraw from the engagement. Second, a material misstatement of fact: the other information contains a factual error unrelated to the financials — say, the company claims it has 500 employees but you know from audit evidence it has 200. Again, discuss with management first. If unresolved, take appropriate action.
Under the revised SA 720 (applicable for audits of financial statements for periods ending on or after 15 December 2016, and examinable for May 2026), the auditor must also include an "Other Information" section in the auditor's report, stating whether any material inconsistency was identified. This is a reporting requirement students often miss. This standard is asked frequently as a 4-mark or 8-mark question — either "explain auditor's responsibility" or a scenario-based question where you must identify what the auditor should do.