SA 805 – Statement on Auditing Standards
Scope and objectives
An auditing standard, SA 805, which deals with the special considerations in the application of other auditing standards (SAs) to an audit of a single financial statement or a specific element, account, or item of a financial statement. This SA applies to audits of financial statements prepared in accordance with a general or special purpose framework. If prepared in accordance with a special purpose framework, SA 8001 also applies to the audit.
SA 805 provides definitions for key terms used in the standard, such as “historical financial information,” “financial statements,” and “element of a financial statement.” It also specifies that this SA 805 does not apply to the report of a component auditor, issued as a result of work performed on the financial information of a component at the request of a group engagement team for purposes of an audit of group financial statements (SA 6002).
The objective of the auditor when applying SA 805 in an audit of a single financial statement or a specific element, account, or item of a financial statement is to address appropriately the special considerations that are relevant to the acceptance, planning and performance of the engagement and forming an opinion and reporting on the single financial statement or specific element, account, or item of a financial statement. However, the auditor is not required to express an opinion on the effectiveness of the entity’s internal control.
The standard is effective for audits of single financial statements or specific elements, accounts, or items for periods beginning on or after April 1, 2011, and for audits of such information prepared as at a date on or after April 1, 2011.
Considerations When Accepting the Engagement
The considerations when accepting an engagement for auditing a single financial statement or a specific element of a financial statement involve compliance with the relevant standards on auditing (SAs) and ethical requirements, as outlined in SA 200.
SA 200 requires auditors to comply with all relevant SAs for the audit engagement. Even if the auditor is not engaged to audit the entity’s complete set of financial statements, they must comply with the applicable SAs. In the case of auditing a single financial statement or a specific element of a financial statement, the auditor needs to assess whether it is practicable to comply with the SA 805.
Compliance with the requirements of SAs may not always be practicable in such engagements because the auditor may not have the same level of understanding of the entity and its environment, including its internal controls, as they would have in the case of an audit of the entity’s complete set of financial statements. Furthermore, they may not have sufficient evidence to corroborate the audit evidence acquired from the accounting records. In some cases, certain SAs may require disproportionate audit work, which may not be practicable.
If the auditor concludes that compliance with the relevant SAs is not practicable for the engagement, they may discuss with management whether another type of engagement would be more practicable. Overall, the auditor needs to carefully consider the practicability of complying with the relevant SAs 805 when accepting an engagement to audit a single financial statement or a specific element of a financial statement.
Acceptability of the Financial Reporting Framework
SA 210 requires auditors to assess the acceptability of the financial reporting framework that has been applied in the preparation of the financial statements. This applies to audits of both complete sets of financial statements and single financial statements or specific elements of financial statements. In the case of an audit of a single financial statement or specific element, the auditor must determine if the applied financial reporting framework will result in a presentation that provides adequate disclosures to enable the intended users to understand the information conveyed in the financial statement or element, and the impact of significant transactions and events on the information conveyed.
If the financial reporting framework used for the single financial statement or specific element of a financial statement is based on a framework that has been established by an authorized or recognized standards-setting organization, such as Financial Reporting Standards, the auditor must assess whether the applicable framework includes all the requirements of the underlying framework that are relevant to the presentation of the single financial statement or specific element that provides adequate disclosures. The objective of this assessment is to ensure that the financial statements provide accurate and reliable information that is relevant and useful to users in making informed economic decisions.
Form of Opinion
The requirements for the form of opinion to be expressed by an auditor when conducting an audit of a financial statement or element. The auditor must consider the applicable financial reporting framework and any applicable laws or regulations when determining the appropriate form of opinion.
If the financial reporting framework is based on a complete set of financial statements, the auditor must determine whether the framework includes all relevant requirements for the preparation of a single financial statement or specific element of a financial statement. The auditor’s decision on the form of opinion to be expressed is a matter of professional judgment and may be influenced by whether the use of certain phrases, such as “presents fairly, in all material respects” or “gives a true and fair view,” is generally accepted in the jurisdiction.
Overall, the passage emphasizes that the form of opinion must be appropriate in the circumstances, and the auditor’s decision on the form of opinion must be based on their professional judgment, considering the applicable financial reporting framework and relevant requirements.
Considerations When Planning and Performing the Audit
The considerations that auditors should keep in mind when planning and performing audits of financial statements or specific elements of financial statements. It notes that the Statements on Auditing Standards (SAs) are written in the context of audits of financial statements, but they can be adapted as necessary for audits of other historical financial information.
The auditor must carefully consider the relevance of each SA when planning and performing the audit, even if only a specific element of a financial statement is being audited. SAs such as SA 240, SA 550, and SA 570(Revised) are relevant in principle because the element could be misstated due to fraud, related party transactions, or incorrect application of the going concern assumption.
SA 805 may need to be adapted for audits of a single financial statement or a specific element of a financial statement. For example, written representations from management about the complete set of financial statements would be replaced by written representations about the presentation of the financial statement or the element in accordance with the applicable financial reporting framework.
When auditing a single financial statement or a specific element of a financial statement in conjunction with the audit of the entity’s complete set of financial statements, the auditor may be able to use audit evidence obtained as part of the audit of the entity’s complete set of financial statements in the audit of the financial statement or the element. However, SA 805 requires the auditor to plan and perform the audit of the financial statement or element to obtain sufficient appropriate audit evidence on which to base the opinion on the financial statement or on the element.
The individual financial statements that comprise a complete set of financial statements, and many of the elements of those financial statements, including their related notes, are interrelated. Therefore, when auditing a single financial statement or a specific element of a financial statement, the auditor may not be able to consider the financial statement or the element in isolation. Consequently, the auditor may need to perform procedures in relation to the interrelated items to meet the objective of the audit.
The materiality determined for a single financial statement or for a specific element of a financial statement may be lower than the materiality determined for the entity’s complete set of financial statements. This will affect the nature, timing, and extent of the audit procedures and the evaluation of uncorrected misstatements.
Forming an Opinion and Reporting Considerations
The considerations and requirements for auditors when forming an opinion and reporting on a single financial statement or a specific element of a financial statement. Auditors should apply the requirements in SA 700 (Revised) and ensure that the financial statements provide adequate disclosures for users to understand the effect of material transactions and events on the information conveyed.
If the auditor is reporting on a single financial statement or a specific element in conjunction with an audit of the complete set of financial statements, a separate opinion must be expressed for each engagement. The auditor should also differentiate the opinion on the single financial statement or specific element from the opinion on the complete set of financial statements if necessary.
If the opinion in the auditor’s report on the complete set of financial statements is modified or includes an Emphasis of Matter paragraph or an Other Matter paragraph, the auditor must determine the effect it has on the opinion on the single financial statement or specific element. If necessary, the auditor should modify the opinion on the single financial statement or specific element or include an Emphasis of Matter paragraph or an Other Matter paragraph in the report.
If the auditor concludes that it is necessary to express an adverse opinion or disclaim an opinion on the complete set of financial statements, they cannot include an unmodified opinion on a single financial statement or specific element that forms part of those financial statements. However, a disclaimer of opinion regarding the results of operations and cash flows may be expressed separately from an unmodified opinion on the state of affairs.
If the auditor expresses an adverse opinion or disclaimer of opinion on the complete set of financial statements, they may still express an unmodified opinion on a specific element if it is not prohibited by law or regulation and does not constitute a major portion of the complete set of financial statements. The auditor cannot express an unmodified opinion on a single financial statement if they have expressed an adverse opinion or disclaimed an opinion on the complete set of financial statements.
Special Considerations— Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement
The International Standard on Auditing (ISA) 805, which provides guidance to auditors when they are performing audits of single financial statements or specific elements, accounts, or items of a financial statement.
The addition to ISA 805 is related to the definition of International Financial Reporting Standards (IFRS). In India, financial reporting standards for the preparation and presentation of financial statements can be either “Accounting Standards issued by the Institute of Chartered Accountants of India or Accounting Standards, notified by the Central Government by publishing the same as Companies (Accounting Standards) Rules, 2006” or “Accounting Standards for Local Bodies issued by the Institute of Chartered Accountants of India (ICAI).” Therefore, SA 805 has been modified accordingly. The relevant places in the standard have also been updated to reflect these changes.
Quiz: Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement
1. SA 805 deals with the special considerations in the application of other auditing standards (SAs) to which of the following?
a) Audits of group financial statements
b) Audits of single financial statements or specific elements, accounts, or items of a financial statement
c) Audits of interim financial statements
d) Audits of internal control systems
Answer: b)
2. SA 805 applies to audits of financial statements prepared in accordance with which of the following?
a) Generally accepted accounting principles (GAAP)
b) International Financial Reporting Standards (IFRS)
c) Both a general or special purpose framework
d) Specific purpose frameworks only
Answer: c)
3. True or False: SA 805 applies to the report of a component auditor issued as a result of work performed on the financial information of a component at the request of a group engagement team for purposes of an audit of group financial statements.
a) True
b) False
Answer: b)
4. The objective of the auditor when applying SA 805 in an audit of a single financial statement or a specific element, account, or item of a financial statement is to:
a) Express an opinion on the effectiveness of the entity’s internal control
b) Ensure compliance with all relevant ethical requirements
c) Determine the materiality threshold for the financial statement or element
d) Address appropriately the special considerations relevant to the acceptance, planning, and performance of the engagement
Answer: d)
5. When accepting an engagement to audit a single financial statement or a specific element of a financial statement, the auditor needs to assess whether it is practicable to comply with:
a) SA 805 only
b) SA 805 and SA 210
c) SA 805 and all relevant SAs
d) SA 805 and SA 700
Answer: c)
6. True or False: Compliance with the requirements of SAs is always practicable in engagements involving the audit of a single financial statement or a specific element of a financial statement.
a) True
b) False
Answer: b)
7. SA 210 requires auditors to assess the acceptability of the:
a) Internal control system of the audited entity
b) Financial reporting framework used in the preparation of financial statements
c) Auditing standards applicable to the engagement
d) Accounting policies adopted by the audited entity
Answer: b)
8. If the financial reporting framework used for a single financial statement or a specific element is based on an authorized or recognized standards-setting organization, the auditor must assess whether the applicable framework includes all the requirements of the underlying framework that are relevant to:
a) The audit of the complete set of financial statements
b) The presentation of the single financial statement or specific element
c) The assessment of materiality for the engagement
d) The determination of internal control weaknesses
Answer: b)
9. True or False: The auditor’s decision on the form of opinion to be expressed is influenced by whether the use of certain phrases, such as “presents fairly, in all material respects” or “gives a true and fair view,” is generally accepted in the jurisdiction.
a) True
b) False
Answer: a)
10. When planning and performing audits of financial statements or specific elements of financial statements, auditors must carefully consider the relevance of each SA. Which of the following SAs are mentioned as relevant in the context of potential misstatements?
a) SA 240, SA 550, and SA 570(Revised)
b) SA 8001, SA 805, and SA 210
c) SA 700, SA 805, and SA 200
d) SA 210, SA 570(Revised), and SA 8001
Answer: a)
Additional question:
11. True or False: SA 805 requires auditors to express an opinion on the effectiveness of the entity’s internal control when auditing a single financial statement or a specific element of a financial statement
Answer: False
12. When assessing the acceptability of the financial reporting framework, auditors must ensure that it provides adequate disclosures to enable users to understand which of the following?
a) Historical financial information
b) Significant transactions and events
c) Internal control weaknesses
d) Ethical requirements
Answer: b)
13. If the financial reporting framework used for a single financial statement or specific element is not based on an authorized or recognized standards-setting organization, what should the auditor consider?
a) Request management to change the framework
b) Assess the impact on internal control effectiveness
c) Determine if it complies with SA 200
d) Determine if it provides reliable information to users
Answer: d)
14. True or False: SA 805 allows auditors to use audit evidence obtained from the audit of the complete set of financial statements in the audit of a single financial statement or specific element.
Answer: True
15. When auditing a single financial statement or a specific element of a financial statement, auditors may need to perform procedures in relation to interrelated items to meet the objective of the audit. What is the reason for this?
a) To test the entity’s internal control system
b) To assess the materiality threshold
c) To ensure compliance with SA 805
d) To consider the financial statement or element in the context of the complete set of financial statements
Answer: d)
16. The materiality determined for a single financial statement or a specific element of a financial statement may be lower than the materiality determined for the entity’s complete set of financial statements. How does this affect the auditor’s procedures?
a) It requires the auditor to perform additional audit procedures
b) It has no impact on the nature, timing, and extent of audit procedures
c) It allows the auditor to reduce the level of audit evidence required
d) It affects the evaluation of uncorrected misstatements only
Answer: b)
17. What requirements should auditors consider when forming an opinion and reporting on a single financial statement or a specific element of a financial statement?
a) SA 700 (Revised)
b) SA 805 and SA 210
c) SA 8001 and SA 570(Revised)
d) SA 200 and SA 550
Answer: b)
18. If the auditor is reporting on a single financial statement or a specific element in conjunction with an audit of the complete set of financial statements, what must be expressed?
a) An unmodified opinion for both the complete set and the single financial statement or specific element
b) Separate opinions for each engagement
c) A disclaimer of opinion for the complete set and an unmodified opinion for the single financial statement or specific element
d) An emphasis of matter paragraph for the single financial statement or specific element
Answer: b)
19. If the auditor expresses an adverse opinion or disclaimer of opinion on the complete set of financial statements, can they express an unmodified opinion on a single financial statement or specific element?
a) Yes, as long as the single financial statement or specific element does not constitute a major portion of the complete set
b) No, an adverse opinion or disclaimer of opinion on the complete set prohibits an unmodified opinion on any component
c) Yes, as long as the auditor includes an emphasis of matter paragraph in the report
d) No, an adverse opinion or disclaimer of opinion on the complete set prohibits any opinion on a single financial statement or specific element
Answer: b)
20. When auditing a single financial statement or a specific element of a financial statement, auditors may need to adapt SA 805. This adaptation is primarily necessary to:
a) Comply with ethical requirements
b) Address the special considerations relevant to the engagement
c) Meet the materiality threshold for the financial statement or element
d) Assess the acceptability of the financial reporting framework
Answer: b)
Statement on Auditing Standards – SA 210
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Statement on Auditing Standards – SA 240
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Statement on Auditing Standards – SA 700
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Statement on Auditing Standards – SA 705
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