IFAC develops audit guidance on accounting for comparatives.

The International Federation of Accountants issued a standard to help clarify auditors' responsibilities when the financial reporting framework of different countries results in different presentations of comparative financial data. International Standard on Auditing (ISA) 710, Comparatives, acknowledges the two frameworks and methods of presentation--the corresponding figures method and the comparative financial statements method--and it establishes the auditor's responsibilities within each framework, such as how to determine the relevant financial reporting framework and what to include in the audit report. It also lists additional requirements when a different auditor prepares earlier financial statements.

IFAC recognized there had been some misinterpretations of the auditor's responsibilities on comparatives. "There was a need for an international standard because the two methods are quite distinct," said Kenneth Gilmour, secretary of IFAC's International auditing practices committee. "This guidance explains what the auditor should do under each scenario. If an auditor does not at first understand which method was used to prepare the financial statements, the statements could be read incorrectly."

Depending on the method, comparatives in financial statements may present amounts--such as financial position and results of operations or cash flows--for more than one period. "Auditors who usually use the comparative financial statements framework mention figures for two years," said Gilmour. "Auditors who use the corresponding figures method must recognize this difference because they' are accustomed to audit reports that mention figures for one year." Gilmour said auditors should use the guidance to familiarize themselves with the alternative standards. "If there is something the auditor does not recognize, this standard will explain how' he or she should proceed" he said.

ISA 710 is effective for reports issued or reissued on or after July 1, 1997, with early application permitted. To order a copy of Comparatives or the IFAC Technical Handbook that contains the complete body of IFAC standards, call IFAC publications at [phone].