Summary of Auditing Standards - SA 800

SA 800: Special Considerations - Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks

A. Scope of SA 800

SA 800 provides guidance on auditing financial statements prepared using a special purpose framework. It focuses on specific considerations related to:

1. Engagement Acceptance: Determining whether the auditor should accept the engagement.
2. Planning and Performance: Special requirements for planning and conducting the audit.
3. Opinion Formation and Reporting: Formulating the audit opinion and reporting appropriately.

Exclusion: SA 800 does not address forming opinions on the effectiveness of internal controls.

B. Concept of Special Purpose Framework (SPFW)

1. Definition:
   A special purpose framework is a financial reporting framework designed to cater to specific user needs. It can follow either:
• A fair presentation framework (provides sufficient detail for decision-making)
• A compliance framework (adheres strictly to rules).
2. Role in Financial Statements:
   The framework defines the structure, content, and completeness of financial statements.
3. Examples of SPFW:
• Cash receipts and disbursements basis: For cash flow information required by creditors.
• Regulator provisions: Financial statements prepared to meet specific regulatory requirements.
• Contractual provisions: Reporting based on a contract, e.g., bond indentures or project grants.
4. Comparison with General Purpose Framework (GPFW):
• GPFW: Designed for general users with diverse needs, such as investors or public stakeholders.
• SPFW: Focuses on a narrow, specific group of users, such as regulators, creditors, or contracting parties.

Considerations When Accepting an Audit of Financial Statements Using SPFW

1. Needs of Users:
• The acceptability of the reporting framework depends on whether it meets the specific needs of intended users.
2. Acceptable Organizational Standards:
• Frameworks created by recognized organizations through transparent processes are presumed acceptable if they incorporate stakeholder feedback.
3. Regulatory Requirements:
• Some entities must follow frameworks mandated by laws or regulations. These are presumed acceptable unless there are indications to the contrary.
4. Conflict Between Standards and Regulations:
• Auditors must resolve conflicts between applicable reporting standards and regulatory requirements. Actions to resolve these conflicts are outlined in SA 210.
5. Contractual Provisions:
• Frameworks specified by contracts or other non-regulatory sources are acceptable if they exhibit attributes of recognized financial reporting frameworks.
6. Professional Judgment on Attributes:
• Judging the relative importance of a framework’s attributes depends on the specific engagement.
• Example: A sale agreement may prioritize prudent valuation methods, deviating from neutrality required in GPFW.

Considerations When Planning and Performing an Audit Using SPFW

1. Ethical Requirements and Independence (SA 200):
• Auditors must comply with ethical standards, including independence, and follow applicable auditing standards.
2. Compliance with Auditing Standards:
• Fulfill each SA requirement unless it is irrelevant or conditional requirements do not exist.
3. Departures from SA Requirements:
• In rare cases, alternative procedures may be performed to achieve the same objectives as specified in an SA.
4. Special Considerations:
• Application of SA requirements may require adjustments for SPFW-specific engagements.

Examples:

• SA 320 (Materiality): Judgments about materiality are based on intended users' needs rather than broad user groups.
• Thresholds in Agreements: Management may agree with users on material misstatements below which adjustments are not made. The auditor must still determine materiality for audit planning.
• SA 260 (Revised) (Governance Communication): Auditors must identify relevant persons for communication, which may differ in SPFW compared to GPFW audits.
• Governance Overlap: Those overseeing SPFW preparation may differ from those overseeing GPFW preparation.
4. Opinion Formation:
• The auditor must follow Revised SA 700 when forming and reporting an opinion on SPFW financial statements.

Description of Applicable Framework in Auditor’s Report and Alerting Users

A. Description in Auditor’s Report

1. Evaluation of Framework Description:
• Auditor must evaluate if the financial statements properly refer to or describe the framework.
2. Contractual Frameworks:
• If based on a contract, the auditor ensures significant interpretations of the contract are disclosed in the financial statements.
3. Specific Requirements in Auditor’s Report:
• State the purpose and intended users of the financial statements.
• If management has a choice of frameworks, clarify their responsibility for determining the acceptability of the chosen framework.

B. Alerting Users

1. Clarify Purpose:
• Notify users that SPFW financial statements are prepared for specific purposes and may not suit other uses.
• Example: Regulatory requirements for placing SPFW on public record may lead to unintended broader use.
2. Avoid Misunderstanding:
• Include a specific alert in the report to inform users about the framework's limitations and intended purpose.

C. Restriction on Distribution or Use

1. Restricted Distribution:
• Auditors may limit the distribution or use of the report to specific users.
2. Expanded Alerts:
• Modify the alert paragraph in the auditor’s report to include details about restricted use, if applicable.

 Summary Mind Maps