SA 800 series:

We need to understand the basics in order to appreciate this standard. So, lets delve in 
Applicable Financial Reporting Framework refers to the set of accounting standards or principles that guide the
preparation and presentation of financial statements. It can be a general-purpose or special-purpose framework
depending on the nature of the financial statements being prepared
These frameworks are expected to possess certain attributes such as relevance, completeness, reliability, neutrality, and
understandability. The relative importance of each of these attributes may vary based on the specific nature and needs of
a particular engagement, and it is the auditor's role to exercise professional judgement to determine which attributes
should be prioritized.
Differences between General-Purpose Framework and Special-Purpose Framework

Criteria General-Purpose Framework Special-Purpose Framework

Intended for a wide range of users (investors, Designed for specific users, such as regulators or
Users
creditors, etc.). contracting parties.

Financial statements prepared under cash basis (for

Financial statements prepared under Ind AS or
Example creditors) or contractual agreements (bond
IFRS, US/UK GAAP
indenture, loan agreement, project grant)

Compliance with Usually adheres to broad regulatory standards like Compliance may be specific to agreements,
Regulations Companies Act or International Standards. regulations, or laws governing certain transactions.

Flexibility in Requires following specific presentation formats Presentation formats are customized based on the
Presentation and disclosures (e.g., Ind AS 1). agreement or user’s needs.

Fair Presentation Framework Vs Compliance Framework:

Aspect Fair Presentation Framework Compliance Framework

A framework that requires compliance with the A framework where financial statements are
framework’s requirements while also ensuring prepared solely based on compliance with the
Definition
that the financial statements present a true and specified requirements, without considering if they
fair view. provide a true and fair view.

Allows management to use judgment to achieve

Judgment a true and fair presentation, even if some specific Judgment is limited, as the focus is strictly on
Involved requirements may be overridden in exceptional compliance with the stated rules and regulations.
circumstances.

Permits departure from certain accounting Does not allow any deviation from the specified
Departure from standards if it results in a more accurate fair requirements, even if strict compliance results in a
Standards presentation (subject to disclosure and less meaningful representation of the financial
justification). statements.

Requires additional disclosures if necessary for Disclosure is limited to the specified requirements of
Disclosure
achieving fair presentation beyond those the framework. No additional disclosures are
Requirements
required by the framework. necessary unless explicitly required.

Common International Financial Reporting Standards (IFRS) Tax or statutory financial statements prepared solely
Examples and Ind AS under the Companies Act, 2013. to comply with regulatory requirements.

Applied in specific contexts, such as for taxation

Typically applied where financial statements are purposes or compliance with legal agreements,
Applicability intended to meet the needs of a wide range of where financial statements are prepared for limited
users (general-purpose financial statements). or specific purposes (special-purpose financial
statements).
SA 800 – Special Considerations—Audits of Financial Statements Prepared in Accordance
with Special Purpose Frameworks (w.e.f 01-04-2024)
The objective of the auditor is to address appropriately the special considerations relevant to:
 The acceptance of the engagement;
 The planning and performance of that engagement; and
 Forming an opinion and reporting on the Financial Statements but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control.
“Financial statements = a complete set of special purpose financial statements including the related notes. The related
notes ordinarily comprise a summary of significant accounting policies and other explanatory information

Direct Question:
 What are the key considerations when accepting an audit engagement under a SPF as per SA 800?"
Case-Based Question:
 ABC Pvt. Ltd. is preparing its financial statements using a special purpose framework for a regulatory body. As an
auditor, what considerations should you evaluate before accepting this audit engagement?
Scenario-Based Question:
 XYZ Ltd. has approached you to audit its financial statements prepared under a contractual agreement for lenders.
What factors would you consider before accepting this special purpose audit engagement?
MCQ Format:
 "Which of the following is a key consideration when accepting a special purpose audit engagement as per SA 800?"
a. Understanding the general accounting framework b. Ensuring the framework is suitable for intended users c.
Reviewing all financial statements for IFRS compliance d. Ensuring that there are no intended users

When accepting special purpose engagements under SA 800, auditors need to consider several factors to ensure they can
effectively perform the engagement. The key considerations are:
1. Understanding the Special Purpose Framework:
o The auditor should understand & evaluate whether the framework is designed to meet the specific needs of
intended users and whether it is adequate for the purposes of the financial reporting.
o In all cases, the applicable financial reporting framework must be authorised or recognised by an organisation
such as a regulatory body, tax authority, or another competent institution that can establish such standards.
2. Intended Users and Their Needs:
o Auditors need to understand who the intended users of the financial statements are & should assess if the
information provided in the financial statements meets the needs of these specific users.
3. Suitability of the Engagement:
o The auditor should ensure that they are capable of (skills/knowledge) conducting the audit in line with the
special purpose framework used in the financial statements related to specific industry
4. Legal or Regulatory Requirements:
o The auditor must consider any specific laws or regulations or contractual agreements governing the
preparation of financial statements using the special purpose framework & ensure its compliances
5. Auditor’s Independence and Objectivity:
o The auditor must confirm that there are no circumstances that might impair their objectivity
o SA 200 requires Auditor to ensure that they are independent and free of any conflicts of interest before
accepting the engagement
 6. Engagement Terms:
o The terms of the audit engagement must be clearly defined, including the scope, reporting requirements, and
responsibilities of both the auditor and the client where the engagement letter clearly outlines the special
purpose framework, intended users, and any limitations in the audit’s scope.
o SA 210 requires auditor to determine if any conflicts b/w the financial reporting standards & additional
requirements exist & prescribe required action by auditor in such case.

Scenario 1: Financial Statements Prepared for a Loan Covenant

Consider a company that prepares its financial statements under a special purpose framework to meet the reporting
requirements for a loan covenant. In this case, the financial statements are prepared specifically for the lender, who
wants to assess whether the company has met certain financial thresholds, such as maintaining a minimum cash balance
or debt-to-equity ratio.
In this situation, the auditor’s professional judgement is needed to evaluate the relative importance of the various
attributes of the financial reporting framework:
1. Relevance: In this case, relevance is crucial, as the financial statements must provide information that is directly
useful to the lender, particularly regarding the financial metrics tied to the loan agreement (e.g., liquidity ratios or
compliance with debt covenants).
2. Reliability: Reliability would also be highly important because the lender needs assurance that the figures
presented, such as cash balances or liabilities, are accurate and free from error, as these directly affect the lender’s
decision-making.
3. Completeness: While completeness is generally important, the focus here might be narrower, as the lender is
primarily concerned with certain aspects of the company’s financial position (e.g., liquidity). Hence, full compliance
with every general-purpose disclosure requirement might be less critical than in a traditional audit.
4. Neutrality: Neutrality would still be important to ensure that the financial statements present an unbiased view of
the company’s financial position, especially since they are prepared for a specific user (the lender). However, given
the special purpose nature, there might be an agreed-upon bias towards reporting on particular figures of interest.
5. Understandability: Since the lender is a knowledgeable user with a specific focus on financial metrics,
understandability might not be as heavily weighted compared to other attributes. The lender is likely familiar with
the company's financial structure, and the focus would be more on ensuring that the figures provided are directly
relevant and reliable.
Conclusion:
In this example, relevance and reliability are of the highest importance, while completeness and understandability may
be less critical because the statements are tailored to meet the lender’s specific needs. The auditor’s professional
judgement comes into play in evaluating which attributes of the financial reporting framework should be prioritized based
on the engagement's specific objectives.
In other engagements, such as those for general-purpose financial statements, the balance of these attributes may shift,
with greater emphasis on completeness and understandability. The auditor needs to apply professional judgement in
determining the right balance of attributes based on the users and purpose of the financial statements

Scenario 2:
Imagine a company is being sold, and both the vendor (seller) and the purchaser (buyer) need to determine the value of
the company’s net assets at the date of the sale. One important component of this is the value of the company’s accounts
receivable—the money owed to the company by its customers.
Normally, when preparing financial statements under a general-purpose framework like Ind AS or IFRS, the company
would need to make an estimate of how much of its accounts receivable is likely to be uncollectible (bad debts). This
estimate is typically based on historical trends and is intended to be neutral—neither overly conservative nor optimistic—
so that it fairly represents the company's financial position.
Special Purpose Agreement:
However, in the context of this sale, the vendor and purchaser agree to take a very conservative approach when
estimating the value of uncollectible receivables. They decide to assume that a larger portion of the accounts receivable
will be uncollectible than would normally be estimated under a general-purpose framework. This conservative approach
serves to protect both parties in the sale:
 The purchaser is reassured that they won’t be overpaying for receivables that might not be collected.
 The vendor avoids any disputes post-sale if the receivables turn out to be uncollectible

Scenario-Based Question: You are appointed as an auditor to audit the financial statements of XYZ Ltd., which have been
prepared in accordance with a special purpose framework for a regulatory authority. What specific considerations would
you address under SA 800 while planning and performing this audit?
Descriptive Question: Discuss the specific audit planning considerations that an auditor must address when performing an
audit under SA 800 for a client using a special purpose framework, such as tax reporting.
Case Study Question: ABC Ltd. prepares its financial statements based on a special purpose framework for a loan
agreement with a bank. As the auditor, explain how SA 800 guides you in forming your audit opinion and the key factors
you must consider during planning and reporting.

Multiple Choice Question (MCQ): When planning an audit under SA 800, which of the following is a primary consideration
the auditor must address when auditing financial statements prepared in accordance with a special purpose framework?
When planning and performing an audit under SA 800, the auditor must address several key considerations specific to the
special purpose framework.
(a) Ensuring compliance with general purpose financial reporting standards
(b) Determining whether the financial statements are suitable for use by a wide range of users.
(c) Evaluating the intended users and determining whether the financial statements meet their specific needs
(d) Avoiding the use of materiality as the concept is not relevant in special purpose frameworks.

1. Understanding the Special Purpose Framework

 Including its nature and its application in the preparation of financial statements.
 The auditor should ensure that the financial statements are prepared in compliance with the framework’s
requirements.
 Example: In the case of a tax basis framework, the auditor must understand how the tax rules affect revenue
recognition, expenses, and other elements of the financial statements.

2. Assess the Acceptability of the Special Purpose Framework

 Take into account the purpose of the financial statements and the needs of the intended users.
 Assess whether the framework will meet the needs of the specific users (e.g., tax authorities, regulators) and if it is
appropriate given the entity's circumstances.
 Example: If financial statements are prepared for regulatory authorities, the auditor must ensure that the
framework is suitable for regulatory compliance and fulfils the requirements set by the regulators.

3. Understanding the Intended Users of FS and Purpose for which they are prepared
 Especially in terms of materiality and risk assessment. Plan procedures that address these specific needs.
 Example: If financial statements are intended for a lender, the focus might be on solvency, debt covenants, and
liquidity, which are crucial for assessing the company’s ability to repay debt.
4. Materiality Considerations
 SA 320 The auditor must consider materiality with respect to the special purpose framework, particularly focusing
on elements that are critical to the intended users & he may set lower materiality thresholds for specific items,
especially if they are of significant interest to the users
 Example: In a regulatory audit, materiality related to compliance with capital adequacy requirements might be
lower than for other financial statement elements.

5. Tailoring Audit Procedures

 The auditor should plan procedures specific to the unique requirements of the framework, such as compliance
testing or verification of contractual terms, which are critical for special-purpose financial reporting.
 Example: In a tax basis framework, the auditor may focus more on the treatment of depreciation and tax
deductions, which may differ from standard accounting treatments under Ind AS.

6. Disclosures and Presentation

 Ensure that the financial statements include appropriate disclosures related to the special purpose framework and
any limitations in their use. Also, highlight any differences from general-purpose frameworks.
 Example: If the financial statements are prepared on a contractual basis, disclosures related to contract terms and
performance metrics must be included to ensure transparency for the intended users.

7. Evaluate Compliance with Framework-Specific Requirements

 SA 250: Evaluate whether the entity complies with laws, regulations, or specific rules related to the framework.
 Perform compliance tests if the special purpose framework is governed by regulatory or contractual requirements
(e.g., tax laws or banking regulations).
 Example: In an insurance company audit, compliance with IRDAI guidelines related to reserves and solvency
requirements must be checked.

8. Communication with Those Charged with Governance

 SA 260 - regarding the nature of the audit and the limitations of the special purpose framework.
 Ensure that management understands how the special purpose framework may limit the use of financial statements
and the potential differences from general-purpose frameworks.
 Example: In a tax basis audit, the auditor might explain to management that the financial statements do not reflect
accrual accounting and may not provide a complete picture of the company’s financial health.

9. Ethical and Legal Considerations

 SA 200: Comply with all ethical requirements and maintain independence throughout the audit of financial
statements prepared under a special purpose framework.
 Ensure that the audit adheres to all the standards on auditing (SA’s) and comply with each requirement of SA unless
it is conditional & such condition does not exist or in an exceptional situation perform alternative audit procedure.

10. Understand how the entity has selected and applied accounting policies based on the contractual provisions.
 When management prepares financial statements based on a contract, there may be clauses in the contract that
require interpretation. SA 315 mandates that the auditor should evaluate significant interpretations made by
management, especially when those interpretations affect how accounting policies are applied in preparing the
financial statements.
  Example: If a contract requires revenue recognition based on milestone achievements, management may interpret
a clause to recognize revenue when certain milestones are achieved. The auditor must understand and assess this
interpretation to ensure that it aligns with the contract and that no reasonable alternative interpretation would
lead to materially different financial results.
 Material Impact of Alternative Interpretations: An interpretation is considered significant if another reasonable
interpretation of the contract would result in a material difference in the financial statements. Under SA 800, this is
crucial because the financial statements are intended for specific users, and misinterpretations could lead to
misleading conclusions about the entity’s financial position or performance.
 Example: If management interprets a contractual provision to defer expenses over time but an alternative
interpretation would have required immediate recognition of those expenses, the auditor must assess whether this
interpretation leads to materially different financial outcomes. If so, the auditor may need to question
management's approach and evaluate its impact on the financial statements.

11. Audit Opinion

a. Application of SA 700 (Revised) to Special Purpose Financial Statements
 SA 700 (Revised) governs how the auditor forms an opinion and reports on special purpose financial statements.
The auditor must consider not only SA 700 but also other relevant Standards on Auditing (SAs) to address unique
aspects of the special purpose framework.
 Example: A company preparing financial statements specifically for a lender under a contract would use a special
purpose framework. The auditor would form an opinion based on the provisions of the contract, applying both SA
700 and other applicable SAs.
b. Going Concern (SA 570)
 Special purpose financial statements may not follow a framework where the going concern concept is relevant.
 The auditor may need to adapt the descriptions of management’s and the auditor’s responsibilities for going
concern based on the specific financial reporting framework.
 Example: If a company is preparing financial statements for tax purposes, the going concern basis may not be
applicable. In this case, the auditor may modify the description of going concern in their report, as the financial
reporting framework does not emphasize it.
c. Key Audit Matters (SA 701)
 Key Audit Matters (KAM) are required for audits of general purpose financial statements of listed entities
 For special purpose financial statements, KAMs are only required if mandated by law or regulation. If required, the
auditor must apply SA 701 in its entirety.
 Example: A regulatory authority may require KAMs to be included in the auditor’s report for financial statements
prepared for a specific compliance purpose. In this case, the auditor would identify and report KAMs.
d. Other Information (SA 720)
 SA 720 (Revised) governs the auditor’s responsibilities regarding other information that accompanies the special
purpose financial statements. This other information might be used by specific users such as owners or stakeholders
whose needs align with the special purpose framework.
 Example: A company prepares special purpose financial statements for a specific regulator, and these are
accompanied by a management report. The auditor would need to consider SA 720 to ensure that this management
report does not contain inconsistencies with the audited financial statements.
e. Signature of the Auditor
 The auditor’s report must be signed by the engagement partner, with their personal name, membership number,
and (if applicable) the firm’s registration number.
 Example: In an audit conducted by a firm, the partner responsible for the engagement signs the report as "John
Doe, Partner, XYZ & Co., Chartered Accountants," including both the partner’s membership number and the firm’s
registration number.
f. Reference to General Purpose Financial Statements
 The auditor may include an Other Matter paragraph in the auditor’s report on the special purpose financial
statements, referring to the report on the general purpose financial statements.
 Example: A company’s general purpose financial statements include a Material Uncertainty Related to Going
Concern. In the special purpose financial statements prepared for a lender, the auditor might include an Other
Matter paragraph referring to the uncertainty disclosed in the general purpose financial statements.
g. Alerting Readers about the Special Purpose Framework
 Special purpose financial statements might be used for purposes other than their original intent (e.g., being made
public by a regulator). To avoid misunderstandings, the auditor should include an Emphasis of Matter paragraph to
explain that the financial statements were prepared using a special purpose framework and may not be suitable for
other uses.
 Example: A company prepares financial statements under a contract for lenders, but a regulatory authority makes
them public. The auditor should include an Emphasis of Matter paragraph indicating that these statements were not
intended for general use.
h. Restriction on Distribution or Use
 The auditor may restrict the distribution or use of the auditor’s report by stating that it is intended solely for
specific users.
 Example: If financial statements are prepared for a regulatory filing and are not meant for general distribution, the
auditor may state in the report that it is intended only for the regulatory authority, and not for other users.
A company prepares its financial statements for a specific regulatory authority using a special purpose framework. The
company also prepares a detailed performance report for internal management purposes. Which auditing or assurance
standards would be applicable in each case, and why?
XYZ Ltd. prepares its financial statements under a special purpose framework for a contractual obligation, while also
issuing a report on the effectiveness of its internal controls. As the auditor, explain which auditing or assurance standards
you would apply for each engagement and why
SA 800 (Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose
Frameworks) applies specifically to the audit of financial statements prepared using a special purpose framework. This
standard is intended for cases where financial statements are prepared for specific users with specific needs, often
deviating from general-purpose frameworks like Ind AS or IFRS.
However, special purpose frameworks are not limited to financial statements alone. They can also apply to other forms of
financial reporting or assurance engagements beyond traditional financial statements. In such cases, different standards
(other than SA 800) may apply.
Examples of Special Purpose Frameworks Beyond Financial Statements:
1. Agreed-Upon Procedures (SRS 4400):
o Example: A company engages an auditor to perform agreed-upon procedures on specific transactions or
processes, such as compliance with loan covenants or verification of specific financial data for a merger. The
output is not a financial statement but a report based on the specific needs of the users.
2. Reports on Specific Elements, Accounts, or Items of a Financial Statement (SA 805):
o Example: An audit of only a company's inventory balance or revenue figures under a contractual
arrangement with a lender. This focuses on a specific element, not the entire financial statement.
3. Prospective Financial Information (SAE 3400):
o Example: A company seeking investment may ask an auditor to review and report on financial forecasts or
projections, which are not historical financial statements but forward-looking financial information.
4. Compilation Engagements (SRS 4410):
o Example: A company may request a professional to compile financial information from data that the
company provides, without issuing an audit or review opinion. This often happens for internal management
reports or investor presentations.
 5. Assurance on Controls at a Service Organization (SAE 3402):
o Example: A company that provides outsourced services (such as cloud computing or payroll processing) might
ask an auditor to issue a report on the effectiveness of its internal controls, which is often required by clients
but does not involve traditional financial statement audits.
ABC Ltd. prepares financial statements for a contract that requires compliance with most, but not all, of the Accounting
Standards issued by ICAI. How should the applicable financial reporting framework be described in the financial
statements, and why?
Discuss why a special purpose framework might not achieve fair presentation even if it is based on a fair presentation
framework. Provide an example.
XYZ Ltd. prepares financial statements under a special purpose framework for its lenders. The financial statements are
later distributed to shareholders. In such a case, how should the auditor ensure that users understand the purpose of the
financial statements, and what should the auditor do to avoid misunderstandings?
Partial Compliance with Recognized Standards:
 A special purpose framework may be based on a recognized financial reporting framework (e.g., ICAI or Companies
Act, 2013), but it might not comply with all requirements.
 Ex: A contract may require financial statements to follow most, but not all, Accounting Standards issued by ICAI.
 In such cases, the description of the framework should reference the financial reporting provisions of the contract,
rather than implying full compliance with ICAI or Companies Act standards.
Non-Fair Presentation Framework:
 A special purpose framework might not achieve fair presentation even if based on a fair presentation framework,
because it doesn't meet all the required criteria for fair presentation.
 Ex: Financial statements prepared according to a contract may omit disclosures required under fair presentation
frameworks like IFRS or Ind AS.
Use of Special Purpose Financial Statements by Broad Users
 Special purpose financial statements may sometimes be the only financial statements an entity prepares, and they
might be distributed to users beyond the intended scope.
 Ex: A company's financial statements prepared for a lender under a special purpose framework may be distributed
to shareholders or other stakeholders.
 Despite wider distribution, these financial statements remain special purpose financial statements under auditing
standards. Clear communication is necessary to avoid misunderstanding about their intended use

CA Sai has prepared a draft audit report for financial statements of X ltd prepared in accordance with financial reporting
provisions of a contract with Y ltd. He drafted unmodified opinion to be given in audit report. Besides, he has also drawn
attention in draft audit report to Note "A" to the financial statements which describes the basis of accounting. How he
should ensure that report would not be misused? draft a suitable para to be included in the report for this purpose
 Situation: CA Sai is auditing the financial statements of X Ltd, which have been prepared according to the financial
reporting provisions of a contract with Y Ltd. This means that X Ltd.’s financial statements are based on a special
purpose framework, tailored to meet the requirements of the contract with Y Ltd rather than a general purpose
framework like Ind AS or IFRS.
 Audit Report: CA Sai is planning to issue an unmodified opinion, meaning he believes the financial statements give
a true and fair view as per the special purpose framework. However, since the financial statements are prepared for
a specific purpose (the contract), there is a risk that the report could be misused by readers who are not aware that
the statements are not general-purpose financial statements.
 Misuse Risk: The concern is that the audit report could be misinterpreted or misused by parties other than those it
was intended for (i.e., readers who may assume the financial statements follow general-purpose accounting
standards).
How to Ensure the Report is Not Misused (As per SA 800)?
Under SA 800 (Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose
Frameworks), the auditor is required to:
1. Clearly mention that the financial statements are prepared using a special purpose framework.
2. Include a restriction in the audit report on the distribution or use of the financial statements, so it is clear that the
report is intended for a specific audience and may not be suitable for other users.
Answer (Drafting a Suitable Paragraph as per SA 800):
In order to prevent misuse, CA Sai should include an Emphasis of Matter paragraph and an additional restriction on use
paragraph in the audit report. Here’s how a suitable paragraph can be drafted:

Emphasis of Matter Paragraph (Alerting Users About the Special Purpose Framework):
“We draw attention to Note A of the financial statements, which describes the basis of accounting. The financial
statements are prepared in accordance with the financial reporting provisions of a contract between X Ltd. and Y Ltd. As a
result, the financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this
matter.”
Restriction on Distribution or Use Paragraph:
“This audit report is intended solely for the use of X Ltd. and Y Ltd., and should not be distributed to or used by other
parties. The financial statements are prepared for the specific purpose of meeting the requirements of the contract with Y
Ltd. and may not be suitable for other purposes.”

Explanation of the Drafted Paragraph:

1. Emphasis of Matter Paragraph:
o Refers to Note A in the financial statements, which describes the special purpose framework (the contract
between X Ltd. and Y Ltd.).
o It highlights that the financial statements are not prepared using a general purpose framework, so they may
not be suitable for other users.
o This ensures that the reader understands the financial statements are limited in scope and should not be
used for general financial decision-making.
2. Restriction on Distribution or Use Paragraph:
o This paragraph specifically limits the audience for the audit report, stating that it is intended only for the
parties involved in the contract (X Ltd. and Y Ltd.).
o It explicitly warns that the financial statements are not meant for wider distribution or for purposes other
than what was intended, which reduces the risk of misuse by unintended users.
SA 800: Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose
Frameworks – SUMMARY 
This standard provides guidance for auditors conducting audits on financial statements that are prepared using special
purpose frameworks (SPF). These financial statements are intended for specific users, such as lenders or regulators,
rather than a broad range of general users.
Key Concepts and Frameworks
1. Financial Reporting Frameworks:
o General-Purpose Framework: Designed for a wide audience (e.g., investors, creditors). Examples include Ind
AS, IFRS, and US/UK GAAP.
o Special-Purpose Framework (SPF): Designed for specific users (e.g., regulators, creditors). These are often
used under specific contracts, laws, or regulations.
2. Attributes of Frameworks:
o Frameworks should be relevant, reliable, complete, neutral, and understandable. The importance of each
attribute varies depending on the engagement and needs of the users.
Fair Presentation vs. Compliance Frameworks
 Fair Presentation Framework: Ensures the financial statements present a true and fair view, allowing for
management judgment.
 Compliance Framework: Focuses strictly on compliance with specified rules and regulations.
Key Auditor Considerations in acceptance of Special-Purpose Engagements
1. Understanding the Special-Purpose Framework:
The auditor must evaluate if the framework meets the specific needs of users (like tax authorities or lenders) and is
suitable for the entity’s financial reporting.
2. User Needs:
Auditors must understand the needs of specific users and ensure the financial statements provide information that
meets those needs.
3. Suitability of the Engagement:
The auditor must assess if they have the skills and resources to conduct the audit.
4. Legal/Regulatory Requirements:
The auditor must ensure the financial statements comply with the relevant laws or contractual agreements.
5. Independence and Objectivity:
The auditor must be free from conflicts of interest and comply with ethical standards (SA 200).
6. Engagement Terms:
Clear terms, including the scope and limitations of the audit, must be defined in an engagement letter (SA 210).
Audit Planning and Reporting
When auditing special-purpose financial statements, the auditor needs to consider the following:
1. Materiality:
Materiality thresholds may vary based on the user’s needs. For example, compliance with a loan covenant might
require lower materiality for debt ratios.
2. Tailoring Audit Procedures:
The audit procedures should be customized to the unique requirements of the SPF, such as testing compliance with
contractual terms.
3. Disclosure and Presentation:
Auditors should ensure appropriate disclosures are included and highlight any differences from general-purpose
frameworks.
4. Compliance with Laws/Regulations:
Auditors must evaluate whether the entity is complying with laws and specific rules related to the SPF (SA 250).
 5. Communication with Governance: SA 260
Management should understand the limitations of the SPF and how it differs from general-purpose frameworks
6. Ethical Considerations:
The auditor must adhere to ethical requirements and maintain independence throughout the audit (SA 200).
7. Significant Interpretations by Management:
Auditors should evaluate any significant interpretations made by management in applying accounting policies,
particularly if alternative interpretations could lead to different results.
Forming an Audit Opinion
1. Application of SA 700:
The auditor forms an opinion based on the SPF and relevant Standards on Auditing (SA 700). This includes
considerations such as fair presentation and compliance with the framework.
2. Going Concern (SA 570):
The concept of going concern may not be relevant in some SPFs, and the auditor may need to modify the report
accordingly.
3. Key Audit Matters (SA 701):
KAMs are typically required for general-purpose financial statements, but for SPFs, they are only necessary if
required by law.
4. Other Information (SA 720):
The auditor must ensure any accompanying information (e.g., management reports) is consistent with the audited
financial statements.
5. Signatures and Reporting:
The auditor’s report should be signed by the engagement partner, clearly identifying their membership and the
firm.
6. Alerting Users About SPF:
An Emphasis of Matter paragraph should be included to notify users that the financial statements were prepared
under an SPF and may not be suitable for general use.
7. Restriction on Use:
The auditor can restrict the distribution or use of the report, clearly stating that it’s intended only for specific users.
Other Special Considerations
 Partial Compliance with Recognized Standards:
If financial statements only comply partially with recognized standards (e.g., Accounting Standards issued by ICAI),
the auditor should describe the framework clearly to avoid implying full compliance.
 Use of SPFs by Broad Users:
Even though financial statements are prepared under an SPF, they may be distributed beyond their intended users.
Clear communication is needed to avoid misunderstandings.