Section Application and Other Explanatory Materi - ASA 800 - Special Considerations - Audits of Financial Reports Prepared in Accordance with Special Purpose Frameworks - October 2009 - Application and Other Explanatory Material | Zoe
ASA 800 - Special Considerations - Audits of Financial Reports Prepared in Accordance with Special Purpose Frameworks - October 2009
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This Auditing Standard does not override the requirements of the other Auditing Standards; nor does it purport to deal with all special considerations that may be relevant in the circumstances of the engagement.
Effective Date
[Deleted by the AUASB. Refer Aus 0.3]
Objective
Standards in an audit of a financial report prepared in accordance with a special purpose framework, is to address appropriately the special considerations that are relevant to:
The acceptance of the engagement;
The planning and performance of that engagement; and
Forming an opinion and reporting on the financial report.
Definitions
For the purposes of this Auditing Standard, the following terms have the meanings attributed below:
[Deleted by the AUASB. Refer Aus 6.1]
Special purpose framework means a financial reporting framework designed to meet the financial information needs of specific users. The financial reporting framework may be a fair presentation framework or a compliance framework.[2] (Ref: Para. A1‑A4)
Aus 6.1 Special purpose financial report means a complete set of financial statements,[*] including an assertion statement by those responsible for the financial report, prepared in accordance with a special purpose framework (Ref: Para A1-A4)
[Deleted by the AUASB. Refer Aus 6.1]
Requirements
Considerations When Accepting the Engagement
Acceptability of the Financial Reporting Framework
ASA 210 requires the auditor to determine the acceptability of the financial reporting framework applied in the preparation of the financial report.[3] In an audit of a special purpose financial report, the auditor shall obtain an understanding of:
The purpose for which the financial report is prepared;
The intended users; and
The steps taken by management to determine that the applicable financial reporting framework is acceptable in the circumstances. (Ref: Para. A5‑A8)
Considerations When Planning and Performing the Audit
ASA 200 requires the auditor to comply with all Australian Auditing Standards relevant to the audit.[4] In planning and performing an audit of a special purpose financial report, the auditor shall determine whether application of the Australian Auditing Standards requires special consideration in the circumstances of the engagement. (Ref: Para. A9‑A12)
ASA 315 requires the auditor to obtain an understanding of the entity’s selection and application of accounting policies.[5] In the case of a financial report prepared in accordance with the provisions of a contract, the auditor shall obtain an understanding of any significant interpretations of the contract that management made in the preparation of that financial report. An interpretation is significant when adoption of another reasonable interpretation would have produced a material difference in the information presented in the financial report.
Forming an Opinion and Reporting Considerations
When forming an opinion and reporting on a special purpose financial report, the auditor shall apply the requirements in ASA 700.[6] (Ref: Para. A13)
Description of the Applicable Financial Reporting Framework
ASA 700 requires the auditor to evaluate whether the financial report adequately refers to, or describes the applicable financial reporting framework.[7] In the case of a financial report prepared in accordance with the provisions of a contract, the auditor shall evaluate whether the financial report adequately describes any significant interpretations of the contract on which the financial report is based.
ASA 700 deals with the form and content of the auditor’s report. In the case of an auditor’s report on a special purpose financial report:
The auditor’s report shall also describe the purpose for which the financial report is prepared and, if necessary, the intended users, or refer to a note in the special purpose financial report that contains that information; and
If management has a choice of financial reporting frameworks in the preparation of such a financial report, the explanation of management’s[8] responsibility for the financial report shall also make reference to its responsibility for determining that the applicable financial reporting framework is acceptable in the circumstances.
Alerting Readers that the Financial Report is Prepared in Accordance with a Special Purpose Framework
The auditor’s report on the special purpose financial report shall include an Emphasis of Matter paragraph alerting users of the auditor’s report that the financial report is prepared in accordance with a special purpose framework and that, as a result, the financial report may not be suitable for another purpose. The auditor shall include this paragraph under an appropriate heading. (Ref: Para. A14‑A15)
* * *
Application and Other Explanatory Material
Definition of Special Purpose Framework (Ref: Para. 6‑Aus 6.1)
Examples of special purpose frameworks are:
A tax basis of accounting for a financial report that accompanies an entity’s tax return;
The cash receipts and disbursements basis of accounting for cash flow information that an entity may be requested to prepare for creditors;
The financial reporting provisions established by a regulator to meet the requirements of that regulator; or
The financial reporting provisions of a contract, such as a bond indenture, a loan agreement, or a project grant.
Aus A1.1 The Corporations Act 2001,[*] Australian Accounting Standards,[#] other applicable law or regulation, or specific users of the financial report, may determine if a financial report is required to be prepared. Australian Accounting Standards provide the applicable financial reporting framework for determining if the entity is a “reporting entity”[†] or a “non‑reporting entity” and consequently if the financial report is required to be general purpose or special purpose. For “reporting entities” preparing a financial report under the Corporations Act 2001, the applicable framework is general purpose. For “non‑reporting entities” preparing a financial report under the Corporations Act 2001, the applicable framework may be general purpose or special purpose.[§]
There may be circumstances where a special purpose framework is based on a financial reporting framework established by an authorised or recognised standards setting organisation or by law or regulation, but does not comply with all the requirements of that framework. An example is a contract that requires a financial report to be prepared in accordance with most, but not all, of the Australian Accounting Standards. When this is acceptable in the circumstances of the engagement, it is inappropriate for the description of the applicable financial reporting framework in the special purpose financial report to imply full compliance with the financial reporting framework established by the authorised or recognised standards setting organisation or by law or regulation. In the above example of the contract, the description of the applicable financial reporting framework may refer to the financial reporting provisions of the contract, rather than make any reference to the Australian Accounting Standards.
In the circumstances described in paragraph A2, the special purpose framework may not be a fair presentation framework even if the financial reporting framework on which it is based is a fair presentation framework. This is because the special purpose framework may not comply with all the requirements of the financial reporting framework established by the authorised or recognised standards setting organisation or by law or regulation that are necessary to achieve fair presentation of the financial report.
A financial report prepared in accordance with a special purpose framework may be the only financial report an entity prepares. In such circumstances, that financial report may be used by users other than those for whom the financial reporting framework is designed. Despite the broad distribution of the financial report in those circumstances, it is still considered to be a financial report prepared in accordance with a special purpose framework under Australian Auditing Standards. The requirements in paragraphs 13‑14 are designed to avoid misunderstandings about the purpose for which the financial report is prepared.
Considerations When Accepting the Engagement
Acceptability of the Financial Reporting Framework (Ref: Para. 8)
In the case of a special purpose financial report, the financial information needs of the intended users are a key factor in determining the acceptability of the financial reporting framework applied in the preparation of the financial report.
The applicable financial reporting framework may encompass the financial reporting standards established by an organisation that is authorised or recognised to promulgate standards for a special purpose financial report. In that case, those standards will be presumed acceptable for that purpose if the organisation follows an established and transparent process involving deliberation and consideration of the views of relevant stakeholders. In some jurisdictions, law or regulation may prescribe the financial reporting framework to be used by management in the preparation of a special purpose financial report for a certain type of entity. For example, a regulator may establish financial reporting provisions to meet the requirements of that regulator. In the absence of indications to the contrary, such a financial reporting framework is presumed acceptable for a special purpose financial report prepared by such entity.
Where the financial reporting standards referred to in paragraph A6 are supplemented by legislative or regulatory requirements, ASA 210 requires the auditor to determine whether any conflicts between the financial reporting standards and the additional requirements exist, and prescribes actions to be taken by the auditor if such conflicts exist.[9]
The applicable financial reporting framework may encompass the financial reporting provisions of a contract, or sources other than those described in paragraphs A6 and A7. In that case, the acceptability of the financial reporting framework in the circumstances of the engagement is determined by considering whether the framework exhibits attributes normally exhibited by acceptable financial reporting frameworks as described in Appendix 2 of ASA 210. In the case of a special purpose framework, the relative importance to a particular engagement of each of the attributes normally exhibited by acceptable financial reporting frameworks is a matter of professional judgement. For example, for purposes of establishing the value of net assets of an entity at the date of its sale, the vendor and the purchaser may have agreed that very prudent estimates of allowances for uncollectible accounts receivable are appropriate for their needs, even though such financial information is not neutral when compared with financial information prepared in accordance with a general purpose framework.
Considerations When Planning and Performing the Audit (Ref: Para. 9)
[Deleted by the AUASB. Refer Aus A9.1]
Aus A9.1 ASA 200 requires the auditor to comply with (a) relevant ethical requirements, including those pertaining to independence, relating to financial report audit engagements, and (b) all Australian Auditing Standards relevant to the audit. It also requires the auditor to comply with each requirement of an Australian Auditing Standard unless, in the circumstances of the audit, the entire Auditing Standard is not relevant or the requirement is not relevant because it is conditional and the condition does not exist; or application of the requirement(s) would relate to classes of transactions, account balances or disclosures that the auditor has determined are immaterial. In rare and exceptional circumstances, when there are factors outside the auditor’s control that prevent the auditor from complying with a requirement, the auditor where possible, performs appropriate alternative audit procedures.[10]
Application of some of the requirements of the Auditing Standards in an audit of a special purpose financial report may require special consideration by the auditor. For example, in ASA 320, judgements about matters that are material to users of the financial report are based on a consideration of the common financial information needs of users as a group.[11] In the case of an audit of a special purpose financial report, however, those judgements are based on a consideration of the financial information needs of the intended users.
In the case of a special purpose financial report, such as those prepared in accordance with the requirements of a contract, management may agree with the intended users on a threshold below which misstatements identified during the audit will not be corrected or otherwise adjusted. The existence of such a threshold does not relieve the auditor from the requirement to determine materiality in accordance with ASA 320 for purposes of planning and performing the audit of the special purpose financial report.
Communication with those charged with governance in accordance with Australian Auditing Standards is based on the relationship between those charged with governance and the financial report subject to audit, in particular, whether those charged with governance are responsible for overseeing the preparation of that financial report. In the case of a special purpose financial report, those charged with governance may not have such a responsibility; for example, when the financial information is prepared solely for management’s use. In such cases, the requirements of ASA 260[12] may not be relevant to the audit of the special purpose financial report, except when the auditor is also responsible for the audit of the entity’s general purpose financial report or, for example, has agreed with those charged with governance of the entity to communicate to them relevant matters identified during the audit of the special purpose financial report.
Forming an Opinion and Reporting Considerations (Ref: Para. 11)
Appendix 1 to this Auditing Standard contains illustrations of auditors’ reports on special purpose financial reports.
Alerting Readers that the Financial Report is Prepared in Accordance with a Special Purpose Framework (Ref: Para. 14)
The special purpose financial report may be used for purposes other than that for which it was intended. For example, a regulator may require certain entities to place the special purpose financial report on public record. To avoid misunderstandings, the auditor alerts users of the auditor’s report that the financial report is prepared in accordance with a special purpose framework and, therefore, may not be suitable for another purpose.
Restriction on Distribution or Use (Ref: Para. 14)
In addition to the alert required by paragraph 14, the auditor may consider it appropriate to indicate that the auditor’s report is intended solely for the specific users. Depending on the law or regulation of the particular jurisdiction, this may be achieved by restricting the distribution or use of the auditor’s report. In these circumstances, the paragraph referred to in paragraph 14 may be expanded to include these other matters, and the heading modified accordingly.