ISA 805 (Revised)

Special Considerations: Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement

1Objective and scope

ISA 805 (Revised) deals with special considerations in the application of the ISAs to an audit of a single financial statement (a statement of cash flows, a statement of financial position) or of a specific element, account or item of a financial statement (accounts receivable, inventory, a provision, a schedule of net assets, a royalty computation, a schedule of expenditure under a grant). The statement or element may be prepared under a general purpose or a special purpose framework; if the latter, ISA 800 also applies. ISA 805 does not apply to the report of a component auditor issued as a result of work performed for a group audit (ISA 600), and it does not override the need to comply with all relevant ISAs: the audit of one element is still an audit under ISA 200, with the same reasonable assurance and the same evidence requirements, scaled to the element.

The objective 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 single financial statement or on the specific element, account or item.

2Key definitions

3Requirements

Acceptance

• ISA 200 requires compliance with every relevant ISA, and it is possible that compliance may not be practicable when the auditor is not also engaged to audit the complete set (the auditor would not have the understanding of the entity and its controls that the audit of the complete set provides, and could not perform the necessary procedures on interrelated items). The auditor determines whether an audit of the single statement or element in accordance with ISAs is practicable, and if not, declines.
• If the auditor is not also engaged to audit the complete set, the auditor determines whether the audit of the single statement or element is practicable at all, and whether the auditor will be able to perform procedures on interrelated items (an audit of receivables requires evidence on sales and cash receipts; an audit of the statement of financial position alone still requires evidence on the transactions that produced it).
• ISA 210 requires the auditor to determine the acceptability of the framework: for a single statement or element the auditor also considers whether application of the framework will result in a presentation that provides adequate disclosures to enable the intended users to understand the information conveyed and the effect of material transactions and events on it. A single statement prepared under IFRS is presented with the notes relevant to it, not with every IFRS note.
• The engagement letter specifies the expected form of the opinion; where law or regulation prescribes a form of wording that is unacceptable under ISA 210, the engagement is accepted only if the report can be modified to avoid misleading users.

Planning and performing

In planning and performing the audit of a single statement or element, the auditor adapts all ISAs relevant to the audit as necessary. Materiality under ISA 320 is determined for the single statement or element itself (which is typically lower than materiality for the complete set, so the audit is more precise, not less); the risk assessment under ISA 315 covers the interrelated items and the controls over them; written representations under ISA 580 are obtained in relation to the statement or element; and, if the auditor is also auditing the complete set, the two audits may be planned together, with the evidence from the complete audit supporting the element engagement provided it is sufficient for the lower materiality.

Forming an opinion and reporting

• Apply ISA 700 (Revised) and the other reporting ISAs adapted as necessary; the opinion refers to the single statement or the specific element by name and to the applicable framework (and, under ISA 800, includes the special purpose alert where relevant).
• If the auditor undertakes an engagement to report on a single statement or element in conjunction with an audit of the complete set, express a separate opinion for each engagement. A single statement or element that is audited alongside the complete set may be published together with the complete set only if the auditor concludes it is sufficiently differentiated from the complete set; if not, the auditor asks management to rectify the presentation, and does not release the report on the element until satisfied.
• If the opinion on the complete set is modified (adverse or disclaimer) or the report includes an Emphasis of Matter or Other Matter paragraph relevant to the element, the auditor determines the effect on the report on the element: if the modification is relevant, the report on the element must reflect it. In particular, where the opinion on the complete set is adverse or a disclaimer, the auditor does not issue an unmodified opinion on an element of those statements included in the same report (it would contradict the overall opinion); an unmodified opinion on the element is possible only when the auditor is not prohibited by law, the element is not a major portion of the complete set, and the report on the element is not published together with the report on the complete set.
• A single financial statement is by nature a major portion of the complete set, so an unmodified opinion on it is not expressed where the complete set carries an adverse opinion or a disclaimer.

4Documentation and reporting

The report on the single statement or element follows ISA 700's structure, names the statement or element and the framework, describes management's responsibility for it (and for determining that the framework is acceptable where a choice exists), describes the auditor's responsibilities adapted to the engagement, and carries the ISA 800 alert and any restriction on use where a special purpose framework applies. The file records the practicability determination, the interrelated items and the procedures on them, the materiality for the element, the evidence supporting the opinion, and, where the auditor also audits the complete set, the reconciliation of the element opinion with the complete-set opinion and the differentiation of the two documents. Where the auditor is not the auditor of the complete set, the report makes that clear so that users do not assume the element opinion carries assurance on the whole.

5Examinable focus