QUESTIONS & ANSWERS ON REPORTING ON A SINGLE FINANCIAL STATEMENT AND A SPECIFIC ELEMENT, ACCOUNT OR ITEM OF A FINANCIAL STATEMENT

Q&A 3(a) Reporting on a Single Financial Statement
and a Specific Element, Account or Item of a Financial
Statement

Q&A 3(a)(i) Which CASs apply to the audit of a single financial
statement and a specific element, account or item of a financial
statement?
1. The CASs are to be applied in the audit of financial statements and
other historical financial information. Other Canadian Standards,
in the CPA Canada Handbook – Assurance, contains engagement
standards that are applied in the audit of a variety of engagements
other than audits of financial statements and other historical
financial information. In some cases, it may not be clear which
engagement standards the practitioner uses when engaged to
report on information. (See the Appendix to this Q&A for a decision
tree that assists in deciding which standards are applicable to the
information under audit.)
Q&A 3(a)(ii) Is the information “historical financial information”?
2. Paragraph 13(g) of CAS 200, Overall Objectives of the Independent
Auditor and the Conduct of an Audit in Accordance with Canadian
Auditing Standards, defines “historical financial information” as
information expressed in financial terms in relation to a particular
entity, derived primarily from that entity’s accounting system, about
economic events occurring in past time periods or about economic
conditions or circumstances at points in time in the past.
3. An entity may prepare information that is not historic financial
information. The information may, for example, not be expressed
in financial terms, such as the number of containers processed
in a recycling facility, or it may not relate to economic events
occurring in past time periods (for example, projections or forecasts
of financial performance). An audit of such information is not
conducted in accordance with the CASs. The auditor may refer to
Other Canadian Standards for guidance.
4. In some circumstances, the information the practitioner is engaged
to audit may be a combination of non-financial and historical
financial information. [This issue will be addressed in a subsequent
issue of this Guide.]
Q&A 3(a)(iii) Does the historical financial information comprise a
complete set of financial statements?
5. When the auditor is engaged to report on a complete set of
financial statements, the auditor makes reference to CAS 700,
Forming an Opinion and Reporting on Financial Statements (for a
complete set of financial statements prepared in accordance with
a general purpose framework), or CAS 800, Special Considerations
— Audits of Financial Statements Prepared in Accordance with
Special Purpose Frameworks (for a complete set of financial
statements prepared in accordance with a special purpose
framework), as appropriate, in determining how to report. When the
auditor concludes that historical financial information the auditor
is engaged to audit is not a complete set of financial statements,
the auditor not only makes reference to CAS 700 or CAS 800, as
appropriate, the auditor also makes reference to CAS 805, Special
Considerations — Audits of Single Financial Statements and Specific
Elements, Accounts or Items of a Financial Statement.
6. Paragraph 13(f) of CAS 200 defines the term “financial statements”
as a structured representation of historical financial information,
including related notes, intended to communicate an entity’s
economic resources or obligations at a point in time, or the
changes therein for a period of time, in accordance with a financial
reporting framework. It also states that the term ordinarily refers
to a complete set of financial statements as determined by the
requirements of the applicable financial reporting framework.
7. When the applicable financial reporting framework is one
of the financial reporting frameworks in the CPA Canada
Handbook – Accounting or the CPA Canada Public Sector
Accounting Handbook, or another generally accepted general
purpose framework such as US GAAP, the application of all of
the requirements of such a framework typically results in the
preparation of a complete set of financial statements.
8. A complete set of financial statements comprises financial
statements that are designed as an integrated package to provide
information for users. For example, general purpose financial
statements comprising a balance sheet, income statement and
statement of cash flows are designed to present, as an integrated
package, the financial position, financial performance/results of
operations and cash flows of an entity. However, some financial
reporting frameworks may prescribe financial information that
is not integrated but comprises a package of individual financial
statements or schedules (for example, when a lender requires
separate statements identifying financial statement items for
debt covenant purposes). Such a package of financial information
would likely not constitute a complete set of financial statements.
Therefore, the auditor may need to consider the underlying
objective of the package of financial information in determining
whether the package is a complete set of financial statements or
not and whether or not to apply the requirements in CAS 805.
9. When a special purpose framework prescribes the financial
statements, and the related notes, that must be prepared to
communicate the economic resources or obligations at a point in
time or the changes therein for a period of time, these financial
statements comprise a complete set of financial statements,
even though the special purpose financial reporting framework
does not require all of the financial statements or disclosures
that would be required by a general purpose framework. This is
because paragraph 13(f) of CAS 200 contemplates a complete
set of financial statements “as determined by the requirements
of the applicable financial reporting framework,” and the financial
reporting framework is designed to meet the financial information
needs of specific users.
Q&A 3(a)(iv) What are the implications of CAS 805 on the work effort
relating to the audit of a single financial statement and a specific
element, account or item of a financial statement?
10. When the auditor is engaged to audit a complete set of financial
statements, the scope of the engagement and the expected form of
the auditor’s report are generally clear. However, when the auditor
is engaged to audit a single financial statement and a specific
element, account or item of a financial statement, the auditor may
need to clarify the scope of the engagement, as this will affect how
the auditor plans and performs the engagement and the form of
the auditor’s report. This is particularly the case when the auditor is
reporting on a schedule of specific elements, accounts or items of a
financial statement. For example, management may be required to
prepare a schedule containing bank balances, inventory, accounts
receivable, accounts payable and a net balance. The auditor may
need to determine whether the audit engagement is to opine on
the individual financial statement items in the schedule or on the
net balance. In the former case, the auditor’s consideration of
such things as materiality, assessing compliance with the financial
reporting framework, assessing the adequacy of disclosures and
fair presentation (when the financial reporting framework is a
fair presentation framework), would be made in relation to the
individual financial statement items. In the latter case, the auditor’s
consideration would be made in relation to the presentation of the
net balance.
Q&A 3(a)(v) How is the financial reporting framework described in the
auditor’s report when reporting on a single financial statement and a
specific element, account or item of a financial statement?
11. The CASs in the 100-700 series, and CAS 800, if applicable, apply
to an audit of financial statements and are to be adapted as
necessary in the circumstances when applied to audits of other
historical financial information, such as audits of single financial
statements and specific elements, accounts or items of a financial
statement. CAS 805 deals with the special considerations in the
application of those CASs to an audit of a single financial statement
or of a specific element, account or item of a financial statement.
12. Accordingly, before accepting an engagement to report on a
single financial statement and a specific element account or item
of a financial statement, paragraph 6(a) of CAS 210, Agreeing the
Terms of Audit Engagements, requires the auditor to determine
the acceptability of the financial reporting framework applied in
the preparation of the financial statement or the specific element
account or item of a financial statement. Paragraph 8 of CAS 805
indicates that such determination includes whether application
of the financial reporting framework will result in a presentation
that provides adequate disclosures to enable intended users
to understand the information conveyed in the single financial
statement or the specific element, account or item of a financial
statement and the effect of material transactions and events
conveyed in the single financial statement or specific element,
account or item of a financial statement.
13. Paragraph 15 of CAS 700 requires the auditor to evaluate whether
the financial statements adequately refer to or describe the
applicable financial reporting framework. In the case of financial
statements prepared in accordance with the provisions of a
contract, paragraph 12 of CAS 800 requires that the auditor shall
evaluate whether the financial statements adequately describe any
significant interpretations of the contract on which the financial
statements are based. Paragraph A6 of CAS 200 states that
a financial reporting framework ordinarily embodies sufficient
broad principles that can serve as a basis for developing and
applying accounting policies that are consistent with the concepts
underlying the requirements of the framework. Accordingly, even
when a financial reporting framework requires minimal disclosures
be provided in notes to the single financial statement or the specific
element, account or item of a financial statement, the single
financial statement or the specific element, account or item of a
financial statement should include a description of the applicable
financial reporting framework. In some cases, a simple reference
(for example, to the financial reporting provisions of a contract)
may be sufficient to describe the financial reporting framework.
This would be the case, for example, when the financial reporting
provisions of the contract are sufficiently detailed and not subject
to significant interpretation. In other cases, more detail may need to
be provided as to the principles and any significant interpretations
used as a basis for developing and applying accounting policies
in the preparation of the single financial statement or the specific
element, account or item of a financial statement.
14. Paragraph A7 of CAS 805 deals with when a single financial
statement or a specific element, account or item of a financial
statement is prepared in accordance with an applicable financial
reporting framework that is based on a financial reporting
framework established by an authorized or recognized standards
setting organization for the preparation of a complete set
of financial statements (for example, International Financial
Reporting Standards or Canadian accounting standards for private
enterprises). In this case, determination of the acceptability of the
applicable financial reporting framework may involve considering
whether the applicable framework includes all the recognition,
measurement, presentation and disclosure requirements of the
framework on which it is based that are relevant to the preparation
of a single financial statement or of a specific element, account or
item of a financial statement.
15. In many cases, the financial reporting framework for preparation
of a single financial statement and a specific element, account
or item of a financial statement may not be specific enough to
serve as a basis for management to develop and apply accounting
policies, as discussed in paragraph A6 of CAS 200, or may make a
general statement (for example, that the single financial statement
or the specific element, account or item of a financial statement
be prepared in accordance with “Canadian generally accepted
accounting principles”. This creates the following challenges for
management and the auditor:
(a) Because Canadian GAAP includes different financial reporting
frameworks, management needs to identify an appropriate
financial reporting framework for the purpose of the single
financial statement or the specific element, account or item
of a financial statement that is being prepared. This financial
reporting framework is often, but not always, the same financial
reporting framework that is used in preparing the entity’s
complete set of financial statements.
(b) The financial reporting framework may not explicitly address
the preparation of the single financial statement or the specific
element, account or item of a financial statement. Therefore,
management may need to make accounting policy choices
designed to ensure recognition and measurement that is
consistent with the financial reporting framework.
(c) When other financial statement items are interrelated with
the financial statement items included in the single financial
statement or the specific element, account or item of a financial
statement being prepared by management, determining the
accounting policy choices relevant to preparation of the single
financial statement or the specific element, account or item of a
financial statement may be complex.
(d) In prescribing that the single financial statement or the specific
element, account or item of a financial statement be prepared
in accordance with “Canadian generally accepted accounting
principles,” for example, the intention of those prescribing
the financial reporting framework may only have been that
the elements, accounts or items of the financial statement be
prepared in accordance with the recognition, measurement and
presentation requirements of Canadian GAAP and not all the
related disclosures that Canadian GAAP would require for those
elements, accounts or items be provided.
16. For these reasons, the auditor’s decision as to the acceptability
of the financial reporting framework and the form of opinion that
the auditor can express on the single financial statement or the
specific element, account or item of a financial statement requires
the use of professional judgment. For example, when the single
financial statement or the specific element, account or item of a
financial statement is extracted directly from the entity’s complete
set of financial statements and the related accounting policies and
disclosures are easy to identify, the auditor considers whether the
financial reporting framework can be appropriately described as
one of the financial reporting frameworks in Canadian GAAP and
the auditor’s opinion expressed in relation to that framework. In
reaching a conclusion, the auditor would consider whether the
single financial statement or the specific element, account or item
of a financial statement takes into account all relevant requirements
of the financial reporting framework, including those dealing
with such things as subsequent events, related party disclosures,
and financial instrument recognition and measurement. In such
a circumstance, the financial reporting framework is a general
purpose framework and the auditor’s report would be based on
the requirements in CAS 700 and CAS 805. (Refer to Q&A 2(c)
in this Guide, which deals with the form of the auditor’s report on
financial statements prepared in accordance with different general
purpose frameworks.) Q&A 2(c) addresses the circumstance when
financial statements prepared for a specific purpose are prepared
in accordance with a general purpose financial reporting framework.
17. In other circumstances (for example, for a schedule of operating
costs prepared in accordance with the terms of a lease agreement
where the specific element, accounts or items included in the
schedule are specifically defined in the lease agreement), the
auditor may conclude that the financial reporting framework
applied in the preparation of the single financial statement or the
specific element, account or item of a financial statement cannot
be appropriately described as one of the financial reporting
frameworks in Canadian GAAP and it would not be appropriate for
the auditor’s opinion to be expressed in relation to that framework.
In such a circumstance, the financial reporting framework might be
described by reference to the financial reporting provisions of the
lease agreement, for example. Such a financial reporting framework
is a special purpose framework and the auditor’s report would be
based on the requirements in CAS 800 and CAS 805 in addition to
CAS 700.
18. Paragraph 13 of CAS 800 requires that if management has a choice
of financial reporting frameworks in the preparation of a single
financial statement or the specific element, account or item of a
financial statement, the explanation of management’s responsibility
for the single financial statement or the specific element, account
or item of a financial statement shall also make reference to its
responsibility for determining that the applicable financial reporting
framework is acceptable in the circumstances. (Refer to Q&A 2(g) in
this Guide for guidance when management has a choice of financial
reporting frameworks in the preparation of special purpose financial
statements.)
Q&A 3(a)(vi) Is the financial reporting framework a fair presentation
or a compliance framework?
19. In reporting in accordance with CAS 805, the auditor needs
to consider whether the financial reporting framework is a fair
presentation or a compliance financial reporting framework. (Refer
to Q&A 2(d) in this Guide for guidance on fair presentation versus
compliance frameworks.)
Q&A 3(a)(vii) How does the auditor describe in the auditor’s report
the financial information on which the auditor is reporting?
20. As discussed in paragraph 10 of this Q&A, when the auditor is
engaged to audit a single financial statement and a specific
element, account or item of a financial statement, the auditor may
need to clarify the scope of the engagement as this will affect how
the auditor plans and performs the engagement and the form of
the auditor’s report. Doing so may become more important when
the entity is required to prepare a package of financial information
comprising separate individual financial statements or schedules. It
is important that the auditor’s report clearly explain the information
on which the auditor is reporting so that readers can understand,
for example, whether the auditor is reporting on the package taken
as a whole or separately on single financial statements and specific
elements, accounts or items of a financial statement. In some
cases, the auditor may consider it more appropriate to issue two or
more auditor’s reports on the package of financial information to
facilitate this understanding.
Q&A 3(a)(viii) How does the auditor describe in the opinion paragraph
in the auditor’s report the information in the single financial
statement, specific element, account or item of a financial statement?
21. Q&A 1(c) in this Guide discusses this topic in the context of a
complete set of financial statements and refers to paragraph A29
of CAS 700, which states that, in the case of financial statements
prepared in accordance with a fair presentation framework, the
auditor’s opinion states that the financial statements presents
fairly, in all material respects, or give a true and fair view of the
information that the financial information is designed to present.
Paragraph A29 of CAS 700 would also be applied in the context
of an audit of a single financial statement and a specific element,
account or item of a financial statement. For example, when the
auditor is reporting on a balance sheet prepared in accordance
with a fair presentation framework, the opinion paragraph in the
auditor’s report would be worded as follows: “In our opinion, the
financial statement presents fairly, in all material respects, the
financial position of [the Company] as at [date] in accordance with
[the applicable financial reporting framework].”
22. Paragraph 36 of CAS 700 states that when expressing an
unmodified opinion on financial statements prepared in accordance
with a compliance framework, the auditor’s opinion shall be that
the financial statements are prepared, in all material respects, in
accordance with [the applicable financial reporting framework].
When the auditor is reporting on a single financial statement
and a specific element, account or item of a financial statement
prepared in accordance with a compliance framework, the auditor’s
opinion may be worded as follows: “In our opinion, the [“financial
statement” or “schedule”, as appropriate] of ABC Company [“as
at” or “for the period ended”, as appropriate] December 31, 2011 is
prepared, in all material respects, in accordance with [the applicable
financial reporting framework].”
APPENDIX
Decision tree for deciding which standards apply to information under audit.

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