I have just discovered an error in the published financial statements of my audit client. What should I do?

Dear friend, Your actions will depend on the nature of the error that has been made and the effect that it has on the published report. It could range from simple mistakes like page numbers and cross referencing to more serious problems such as transposition errors in key financial figures, omissions of key information or inclusions of materially incorrect or inconsistent information that could cause the accounts to no longer be ‘true and fair’ (or ‘fairly present’) and mean that the audit report wording needs to be revised. Paragraph 14 of ASA 560 Subsequent Events makes it clear that an auditor has no obligation to enquire about the financial report after the report has been issued. However if, after that date, the auditor becomes aware of a fact that existed at the date of the audit report which, if known at that date, may have caused the auditor to qualify the audit report, paragraph 14 states that the auditor should consider whether the financial report needs revision, should discuss the matter with management, and should take the action appropriate in the circumstances. Such appropriate steps could include raising the issue at the annual general meeting where the financial statements are presented, issuing an amendment notice to all recipients of the financial statements, reissuing the audit report or requiring the recall and reissue of the financial statements. Paragraphs 15 and 16 give more guidance on the requirements for reissuing an audit report while paragraph 13 of ASA 230 Documentation gives guidance on documenting any additional work performed. The final decision on appropriate action will be a matter for professional judgment dependant on the actions of management, bearing in mind the company’s obligations under the Corporations Act in relation to producing financial statements and notes thereto that comply with accounting standards and present a true and fair view. ASA 720 The Auditor’s Responsibilities Relating to Other Information in Documents Containing an Audited Financial Report also gives guidance on errors and inconsistencies in material accompanying the financial information in a published financial report. Where a material error has been made but the financial report has not been reissued (e.g. due to the impending release of the next year’s report) AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors requires, in paragraph 42 that the error be corrected by retrospectively restating the comparatives. Guidance on the appropriate application of this restatement is contained in paragraphs 43-45 and appropriate disclosures for these circumstances are prescribed in paragraph 49.