HKSA 800 - Special Considerations - Special Purpose Frameworks (Condensed)

Introduction & Scope (Para 1-3)

Introduction & Scope

Scope of HKSA 800

HKSA 800 (Revised) deals with special considerations in applying HKSAs (100-700 series) to an audit of financial statements prepared in accordance with a special purpose framework.

Effective Date

Effective for audits of financial statements for periods ending on or after 15 December 2016.

Objective

The auditor's objective is to address special considerations relevant to:

Definitions (Para 6 & A1-A4)

Definitions

Special Purpose Financial Statements (Para 6(a))

Definition: Financial statements prepared in accordance with a special purpose framework (other than a general purpose framework), including related disclosures.

Special Purpose Framework (Para 6(b))

Definition: A financial reporting framework designed to meet the financial information needs of specific users.

May be either:

• Fair presentation framework – requires compliance and acknowledges that achieving fair presentation may require disclosures beyond those required
• Compliance framework – requires compliance but does not contain the above acknowledgement

Examples (Para A1)

Sole Financial Statements (Para A4)

When special purpose financial statements are the only financial statements an entity prepares, they may be used by users other than those intended. Despite broad distribution, they remain special purpose financial statements for HKSA purposes.

Accepting the Engagement (Para 8 & A5-A8)

Accepting the Engagement

Acceptability of the Financial Reporting Framework (Para 8)

The auditor shall obtain an understanding of:

Key Factors in Determining Acceptability (Para A5-A8)

Primary factor: The financial information needs of the intended users.

When framework is from a contract or other sources: Determine acceptability by considering whether the framework exhibits attributes normally exhibited by acceptable financial reporting frameworks (as described in Appendix 2 of HKSA 210). The relative importance of each attribute is a matter of professional judgment.

Planning & Performing the Audit (Para 9-10 & A15-A19)

Planning & Performing the Audit

Special Consideration in Applying HKSAs (Para 9)

The auditor shall determine whether application of the HKSAs requires special consideration in the circumstances of the engagement.

Understanding of the Applicable Financial Reporting Framework (Para 10)

Requirement: The auditor shall obtain an understanding of:

• The applicable financial reporting framework
• The entity's accounting policies and reasons for any changes

Definition of significant interpretation: An interpretation is significant when adoption of another reasonable interpretation would have produced a material difference in the information presented in the financial statements.

Going Concern Considerations (Para A15)

Special purpose financial statements may or may not be prepared under a framework where the going concern basis is relevant. For example, tax basis financial statements in some jurisdictions → going concern basis may not be relevant.

Key Audit Matters (Para A16)

Other Information (Para A17)

Reports containing or accompanying special purpose financial statements—the purpose of which is to provide owners (or similar stakeholders) with information on matters presented in the special purpose financial statements—are considered to be annual reports for HKSA 720 (Revised).

Forming an Opinion & Reporting (Para 11-14 & A21)

Forming an Opinion & Reporting

Application of HKSA 700 (Revised) (Para 11)

When forming an opinion and reporting on special purpose financial statements, the auditor shall apply the requirements in HKSA 700 (Revised).

Description of the Applicable Financial Reporting Framework (Para 12-13)

Para 12 - Evaluation of description:

• The auditor shall evaluate whether the financial statements adequately refer to or describe the applicable financial reporting framework
• For contract-based frameworks: evaluate whether the financial statements adequately describe any significant interpretations of the contract

Para 13 - Specific reporting elements:

Restriction on Distribution or Use (Para A21)

The auditor may consider it appropriate to indicate that the auditor's report is intended solely for specific users. This may be achieved by restricting distribution or use of the auditor's report.

Application & Explanatory Material (Para A15-A19)

Application & Explanatory Material

Going Concern Considerations (Para A15)

Special purpose financial statements may or may not be prepared under a framework where the going concern basis is relevant. The description of management's responsibilities and auditor's responsibilities relating to going concern may need to be adapted.

Key Audit Matters (Para A16)

Other Information (Para A17)

Reports containing or accompanying special purpose financial statements—the purpose of which is to provide owners (or similar stakeholders) with information on matters presented in the special purpose financial statements—are considered to be annual reports for HKSA 720 (Revised).

"Similar stakeholders" includes the specific users whose financial information needs are met by the design of the special purpose framework.

Name of the Engagement Partner (Para A18)

• Listed entities: Required to include the name of the engagement partner
• Other entities: May be required by law/regulation or the auditor may otherwise decide to do so

Reference to General Purpose Financial Statements (Para A19)

The auditor may deem it appropriate to refer, in an Other Matter paragraph, to:

• The auditor's report on the complete set of general purpose financial statements
• Matter(s) reported therein

Illustrations of Auditor's Reports (Appendix)

Illustrations of Auditor's Reports

Illustration 1 - Contract-Based Compliance Framework (Non-Listed Entity)

Key features:

• Financial statements prepared per financial reporting provisions of a contract
• Compliance framework
• No general purpose financial statements issued
• Unmodified opinion
• Distribution and use restricted
• No KAMs communicated

Report structure:

1. Opinion paragraph
2. Basis for Opinion
3. Emphasis of Matter - Basis of Accounting and Restriction on Distribution and Use
4. Responsibilities of Management and Those Charged with Governance
5. Auditor's Responsibilities for the Audit of the Financial Statements

Illustration 2 - Tax Basis Compliance Framework (Non-Listed Entity)

Key features:

• Partnership financial statements prepared per tax basis of accounting
• Compliance framework
• To assist partners in preparing individual income tax returns
• Unmodified opinion
• Distribution restricted
• No KAMs communicated

Report structure:

1. Opinion paragraph
2. Basis for Opinion
3. Emphasis of Matter - Basis of Accounting and Restriction on Distribution
4. Responsibilities of Management and Those Charged with Governance
5. Auditor's Responsibilities for the Audit of the Financial Statements

Illustration 3 - Regulatory Fair Presentation Framework (Listed Entity)

Key features:

• Listed entity
• Financial statements prepared per financial reporting provisions established by a regulator
• Fair presentation framework
• Unmodified opinion
• Material Uncertainty Related to Going Concern exists (adequate disclosure)
• Distribution not restricted
• KAMs communicated (required by regulator)
• Other Matter paragraph referencing general purpose financial statements

Report structure:

1. Opinion paragraph
2. Basis for Opinion
3. Emphasis of Matter - Basis of Accounting
4. Material Uncertainty Related to Going Concern
5. Key Audit Matters
6. Other Matter
7. Responsibilities of Management and Those Charged with Governance
8. Auditor's Responsibilities for the Audit of the Financial Statements

Key Takeaways Summary

Key Takeaways Summary