The directors' report and other information
What ISA 720 (Revised) asks of the auditor for the directors' report and other information issued with audited statements, and when to read it.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
The directors' report is usually the last part of the annual financial statements anyone writes and the first part a shareholder reads. On a busy audit it is also the part the team is least sure what to do with. It is not covered by the audit opinion, yet it sits in the same bound document, and a reader who finds the directors describing "a year of strong growth" next to a loss and a going concern note will not care whose responsibility the mismatch was.
ISA 720 (Revised) gives the auditor a defined job here. It is not an audit of the other information, but it is more than a glance, and the auditor's report has to say what was done.
What counts as other information
Under ISA 720 (Revised), other information is financial or non-financial information, other than the financial statements and the auditor's report on them, included in the entity's annual report. The annual report is the document or set of documents an entity prepares, usually each year, to tell its owners about its operations and its results and financial position as set out in the statements.
For the clients most small and medium firms audit, other information typically means:
- the directors' report;
- for some companies, an audit committee report and a company secretary's certificate;
- a chairperson's statement or review of operations, where one is published;
- any supplementary schedules issued with the statements but outside the audit opinion, such as a detailed income statement that is marked unaudited.
Which documents count is a matter of fact for each engagement. Agree with management early which documents make up the annual report and when each will be available.
Reading it for inconsistencies
The auditor must read the other information and, in doing so, consider:
- whether there is a material inconsistency between the other information and the financial statements, for example by comparing selected amounts and statements;
- whether there is a material inconsistency between the other information and the knowledge the auditor obtained in the audit;
- whether there are other indications that the other information, where it does not relate to the statements or the audit knowledge, appears to be materially misstated.
A practical way to do the first part is to tick every figure in the directors' report back to the statements and notes: revenue, profit, dividends declared, the number of shares, property disposals. The second part draws on the team's knowledge. If the directors' report says the company has no material litigation and the legal letter says otherwise, that is an inconsistency with the auditor's knowledge, even though no number disagrees.
When the other information is misstated
If a material inconsistency appears to exist, the auditor discusses it with management and performs other procedures as needed to conclude whether the other information is materially misstated, the financial statements are materially misstated, or the auditor's understanding needs updating.
If the other information is materially misstated and management will not correct it, the auditor communicates the matter to those charged with governance and asks for correction. If it is still not corrected, the auditor considers the implications for the report and takes other appropriate action, which may include withdrawing from the engagement where law or regulation allows. If the problem turns out to be in the financial statements, the matter moves to ISA 450 and ISA 705 territory instead.
The other information section of the report
When, at the date of the auditor's report, the auditor has obtained some or all of the other information (or, for a listed entity, has obtained it or expects to), the report includes a section headed "Other Information". It identifies the other information obtained, states that the opinion does not cover it and that no form of assurance conclusion is expressed on it, describes the auditor's responsibilities, and either states that the auditor has nothing to report or describes the uncorrected material misstatement.
In Achekam, the engagement team drafts the auditor's report on standard ISA 700, 705, 706 and 701 wording, approval is refused while any bracketed placeholder remains, and only the engagement partner approves. The default wording is South African; for a Nigerian or Kenyan engagement the draft uses that country's legal wording, citing CAMA 2020 and the FRC Act or the Companies Act 2015, and the partner owns the final text. Whatever the starting point, check before approval that the Other Information section names the documents the team actually read, by their real titles. A section that lists a chairperson's statement the client never produced is a mistake an inspector will notice.
Timing when the report is still a draft
The common failure is timing. Other information is read early, the statements change, and nobody reads the directors' report again.
In Achekam, the Studio builds a draft set of annual financial statements from a mapped trial balance with every figure calculated in code, including the directors' report, the four primary statements, policies, notes and a detailed income statement. A block a person edited is kept when the draft is rebuilt. That is convenient, and it creates a specific risk: a paragraph in the directors' report that someone typed by hand will survive a rebuild even after the figures it describes have changed. Read the directors' report against the final build, not an earlier one.
The partner can also send the client a read-and-comment preview link to the audit report, which the client opens without signing in; the link expires and can be revoked. That preview is a good moment to confirm with the directors which other information will be published and that the version you read is the version they will issue.
Put the reading on a work item of its own. Each work item lists the procedures to perform and the documents required, and a step is marked done only with a written response and its documents, or set aside with a reason; steps are never deleted. A response that says which version of the directors' report was read, against which build of the statements, and what was found, is exactly the evidence ISA 720 needs.
An other-information checklist
- Agree with management which documents make up the annual report, and when each will be ready.
- Tick every figure in the directors' report to the statements and notes.
- Read the narrative against what the team learnt in the audit, including legal letters and minutes.
- Re-read after the last rebuild of the statements.
- Make sure the report's Other Information section names the documents actually read.
- Record the version read and the outcome on the work item.
The full text of ISA 720 (Revised), with every other ISA, is in the IAASB's 2026 Handbook of international pronouncements, the download page for the complete standards. What the directors' report itself should contain is covered in the directors' report: what it must contain, and the approval route for the report in drafting and approving the auditor's report.
A habit to build
Make the directors' report the last thing the manager reads before the file goes to the partner, after the final figures are settled. A careful read at that point saves an embarrassing correction after the statements have been issued.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
