Examples of special purpose frameworks are:

- A tax basis of accounting for a set of financial statements that accompany an entity’s tax return;
- The cash receipt and disbursement basis of accounting for cash flow information that an entity
may be requested to prepare for creditors.
- The financial reporting provisions a contract, such as a bond indenture, a loan agreement, or a
project grant.

A2. There may be circumstances where a special purpose framework is based on a financial reporting
framework established by an authorized or recognized standard setting organization or by law or
regulation but does not comply with all the requirements of that framework. An example is a contract
that requires financial statements to be prepared in accordance with most, but not all, of the Financial
Reporting Standards of Jurisdiction X. 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 statements by imply full compliance with the financial reporting framework establish
by the authorized or recognize standards setting organization or by law or regulation. In the above
example of the contract, rather than make any reference to the Financial Reporting Standards of
Jurisdiction X.

A4. Financial statements prepared in accordance with a special purpose framework may be only
financial statements an entity prepares. In such circumstances, those financial statements may be used
by users other than those for whom the financial reporting framework is designed. Despite the broad
distribution of the financial statements in those circumstances, the financial statements are still
considered to be special purpose financial statements for purpose of the ISAs. The requirements in
paragraph 13-14 are designed to avoid misunderstandings about the purpose for which the financial
statements are prepared. Disclosures comprise explanatory or describe information, set out as required,
expressly permitted or otherwise allowed by the applicable financial reporting framework, on the face of
financial statements, or in the notes, or in the notes, or incorporated therein by cross-reference.

Consideration When Accepting the Engagement

Acceptability of the Financial Framework (REF.PARA.8)

A5. In the case of special purpose financial statements, the financial information needs of the intended
users are a key factor in determining the acceptability of financial reporting framework applied in the
preparation of the financial statements.

A6. The applicable financial reporting framework may encompass the financial reporting standards
established by an organization that is authorized or recognized to promulgate standards for special
purpose financial statements. In that case, those standards will be presumed acceptable for that
purpose if the organization follows an established and transparent process involving deliberation and
consideration of the views of relevant stakeholders. In some jurisdiction, law or regulations prescribe
the financial reporting framework to be used by the management in the preparation of special purpose
financial statements for a certain type of entity. For example, a regulator may establish financial
reporting previsions to meet the requirements of that regulator. In the absence of indications to the
contrary, such a financial reporting framework is presumed acceptable for special purpose financial
statements prepared by such entity.

A7. Where the financial reporting standards referred to in paragraph A6. Are supplemented by
legislative or regulatory requirements, ISA 210 requires the auditor to determine whether any conflicts
between the financial reporting standards and the additional requirements exist and prescribes action
to be taken by the auditor if such conflicts exist.

A8. The applicable financial reporting framework may encompass the financial reporting previsions of a
contract, or source 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
framework 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 the
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.

Consideration When Planning and Performing the Audit (Ref. Para.9)

A9. ISA 200 requires the auditor to comply with (a) relevant ethical requirements, including those
pertaining to independence, relating to financial statements audit engagement, and (b) all ISAs relevant
to the audit. It also requires the auditor to comply with each requirements of an ISA unless, in the
circumstances of the audit, the entire ISA is not relevant or the requirement is not relevant because it is
conditional and the condition does not exist. In exceptional circumstances, the auditor may judge it
necessary to depart from a relevant requirement in an ISA by performing alternative audit procedures to
achieve the aim of that requirement.

A10. Application of some of the requirements of the ISAs in an audit of special purpose financial
statements may require special consideration by the auditor. For example, in ISA 320, judgements about
matters that are material to users of the financial statements are based on a consideration of the
common financial needs of users as a group. In the case of an audit of special purpose financial
statements, however, those judgements are based on a consideration of the financial information needs
of the intended users.

A11. In the of special purpose financial statements, such as those prepared in accordance with the
requirements of 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 ISA 320 for purpose of and performing the audit of the special purpose financial
statements.

A12. ISA 260 (Revised) requires the auditor to determine the appropriate person(s) within the entity’s
governance structure with whom to communicate. ISA 260(Revised) notes that in some cases, all of
those charged governance are involved in managing the entity and the application of the
communication requirements is modified to recognize this position. When a complete set of general
purpose financial statements is also prepared by the entity, those person(s) responsible for the
oversight of the preparation of the preparation of special purpose financial statements may not be the
same as those charged with governance responsible for the oversight of the preparation of those
general purpose financial statements.

Forming an Opinion and Reporting Consideration (Ref: Para. 11)

A13. The appendix to the ISA contains illustrations auditor’s reports on special purpose financial
statements. Other illustrations of auditor’s reports may be relevant to reporting on special purpose
financial statements (see for example, the appendices to ISA 700 (Revised) ISA 705 (revised) ISA 570
(Revised) ISA 720 ( Revised) and ISA 706( Revised ) ).

Application of ISA 700(Revised) When Reporting on Special Purpose Financial Statements

A14. Paragraph 11 of this ISA explains that the auditor is required to apply ISA 700(revised) when
forming an option and reporting on special purpose financial statements. In doing so, the auditor is also
required to apply the reporting requirements in other ISAs and may find the special considerations
addressed in paragraphs A15-A19 below helpful.

Going concern

A15. special purpose financial statements may or may not be prepared in accordance with a financial
reporting framework for which the going concern basis of accounting is relevant (e.g... the going concern
basis of accounting is not relevant for some financial reporting framework used in the preparation of the
special purpose financial statements, the description in the auditor’s report of management’s
responsibilities relating to going concern may need to be adapted as necessary. The description in the
auditor’s report of the auditors responsibilities may also need to be adapted as necessary depending on
how ISA 570 revised) applies in the circumstances of the engagement.