AARS – The Case Book ISA 800
ISA 800
AUDIT OF SPECIAL PURPOSE F/S
QUESTIONS
Q.1 Basit and Company, Chartered Accountants has been appointed as auditor of Toys Pakistan Limited, a subsidiary of a
listed company incorporated in China, for the year ended 30 September 2019.
Basit and Company is required to audit following two sets of financial statements:
(i) Financial statements prepared to meet the statutory requirements of Pakistan. The audit report is expected to
be issued on 10 December 2019.
(ii) Financial statements prepared to meet the requirements of consolidation in China. These financial statements
would only be used by the group management in China. The framework that has been used for the preparation
of these financial statements is a special purpose framework. The audit report is expected to be issued on 20
December 2019.
Required:
Discuss the additional matters that Basit and Company may include in its audit report on the financial statements
prepared for consolidation purpose. (06)
(ICAP, CFAP 06 Level – Winter 2019, Q.# 4)
Q.2 You are the manager responsible for the audit of Hafiz Limited (HL), a listed company, whose fieldwork in respect of the
statutory audit is in progress. You are reviewing the following issues which were brought to your attention by the audit
team:
HL’s parent company is registered in a foreign country and has asked your firm to also provide an audit report on a
separate set of financial statements which have been prepared under the accounting framework prevalent in that country.
Required:
Discuss how would you deal with each of the above issues and what may be the implications thereof on your audit report.
(ICAP, CFAP 06 Level – Winter 2011)
Q.3 You are the statutory auditor of Critical Limited. The company has asked you to submit a special purpose audit report for
onward submission to a regulatory authority. The report has to be submitted on a format prescribed by the regulatory
authority, the substance and wording of which does not conform to the requirements of International Standards on
Auditing.
Required:
(a) Describe the essential contents of a special purpose audit report as required by the International Standards on
Auditing.
(b) Explain how you would respond to the above situation. (08)
(ICAP, CFAP 06 Level – Summer 2007)
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AARS – The Case Book ISA 800
SUGGESTED SOLUTIONS
Q.1 Special Purpose Framework:
As the financial statements are prepared on special purpose framework, therefore, auditor shall include Emphasis of
Matter Paragraph in his report in which auditor shall state:
a clear description that financial statements are prepared on Special Purpose Framework and may not be
suitable for other purposes.
reference to the notes in financial statements which fully describes the Basis of Accounting.
that auditor’s opinion is not modified in respect of this matter.
Restriction on Distribution:
In Other Matter Paragraph (or in EOM Paragraph), auditor may state that report is intended solely for the intended users,
and should not be distributed to or used by other parties.
Report on Separate Set of Financial Statements:
Auditor shall include “Other Matter” paragraph in report in which auditor shall state that same entity has prepared
another set of financial statements under different framework and he has also issued an audit report on another set
financial statements.
Examiners’ Comments:
Good performance was observed in this question. However, some of the examinees did not mention that other matter
paragraph should be included in the audit report to refer the fact that another set of financial statements has been prepared
by the same entity in accordance with general purpose framework and that the auditor has issued a report on those financial
statements.
Marking Plan:
Up to 2.5 marks for discussing each additional matter to be added in the audit report 6.0 marks
Passing Percentage:
48%
Q.2 How to Deal:
Accounting framework Prevalent in other Country:
Auditor shall determine whether AFRF is acceptable considering nature of entity, purpose of financial statements, users of
financial statements and legal requirements.
If Framework is established by Law/regulations, it is generally presumed to be acceptable.
If Framework is not prescribed by Law/regulations, AFRF should show characteristics discussed in ISA 210
i.e. Completeness, Relevance, Reliability, Neutrality, Understandability
Implication on Audit Report:
Restriction on Distribution:
Auditor shall include “Other Matter” (or EOM Paragraph) paragraph in report in which auditor shall state that report is
intended solely for the intended users, and should not be distributed to or used by other parties.
Report on separate set of financial statements:
Auditor shall include “Other Matter” paragraph in report in which auditor shall state that same entity has prepared
another set of financial statements under different framework and he has also issued an audit report on another set
financial statements.
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AARS – The Case Book ISA 800
Examiners’ Comments:
Most students were not able to highlight the need to determine whether the reporting requirements of other framework are
acceptable to the auditor in the prevailing circumstances. Some also failed to specify that if the framework was acceptable,
the auditor would need to include an “other matter paragraph” in the audit report.
Q.3 (a)
Contents of an audit report under Special purpose framework:
While preparing audit report, auditor shall apply requirements of ISAs as following:
ISA 700
Contents of audit report under shall be same as per ISA 700 i.e. Opinion, Basis of Opinion, Management’s
Responsibilities, Auditor’s Responsibilities, Name of Engagement Partner.
ISA 706
Auditor shall include Emphasis of Matter Paragraph in his report because financial statements are prepared on
special purpose framework.
Auditor may also include Other Matter Paragraph to restrict distribution of report.
ISA 570
Description of management’s responsibilities and auditor’s responsibilities may be modified if Going Concern
Basis is NOT relevant e.g. in Tax Basis Framework).
ISA 701
KAM is NOT included in Special Purpose F/S unless required by law or deemed necessary by auditor).
ISA 720
Other Information paragraph will be included only if other information is issued alongwith Auditor’s Report.
(b)
Auditor’s report prescribed by Law or Regulation:
If layout/wording of local audit report is significantly different from ISAs (particularly opinion), auditor shall evaluate
whether users may misunderstand assurance obtained from audit and whether additional explanation in auditor’s report
can mitigate this misunderstanding.
If additional explanation cannot mitigate misunderstanding:
If engagement is not required by law, auditor shall not accept audit engagement.
If engagement is required by law, auditor shall not state compliance with ISAs in report.
Report on separate set of financial statements:
Auditor shall include “Other Matter” paragraph in report in which auditor shall state that same entity has prepared
another set of financial statements under different framework and he has also issued an audit report on another set
financial statements.
Restriction on Distribution:
Auditor shall include “Other Matter” paragraph in report in which auditor shall state that report is intended solely for the
intended users, and should not be distributed to or used by other parties.
