Special Considerations—Audits of Financial Statements Prepared in

Special Considerations — Audits of Financial Statements 1325

AU-C Section 800

Special Considerations—Audits of Financial

Statements Prepared in Accordance With

Special Purpose Frameworks

Source: SAS No. 122; SAS No. 125; SAS No. 127; SAS No. 132; SAS

No. 139.

Effective for audits of nancial statements for periods ending on or

after December 15, 2012, unless otherwise indicated.

Introduction

Scope of This Section

.01 AU-C sections 200–700 apply to an audit of nancial statements. This

section addresses special considerations in the application of those AU-C sec-

tions to an audit of nancial statements prepared in accordance with a special

purpose framework, which is a cash, a tax, a regulatory, a contractual, or an

other basis of accounting. This section does not purport to address all special

considerations that may be relevant in the circumstances. (Ref: par. .A1–.A5)

[As amended, effective for audits of nancial statements for periods ending on

or after December 15, 2012, by SAS No. 127. As amended, effective for audits of

nancial statements prepared in accordance with a special purpose framework

for periods ending on or after December 15, 2021, by SAS No. 139.]

.02 This section is written in the context of a complete set of nancial state-

ments prepared in accordance with a special purpose framework. Section 805,

Special Considerations — Audits of Single Financial Statements and Specic

Elements, Accounts, or Items of a Financial Statement, addresses special con-

siderations relevant to an audit of a single nancial statement or of a specic

element, account, or item of a nancial statement.

.03 Section 570, The Auditor's Consideration of an Entity's Ability to Con-

tinue as a Going Concern, applies to audits of special purpose nancial state-

ments, as discussed in paragraph .14 of this section. [As amended, effective for

audits of nancial statements prepared in accordance with a special purpose

framework for periods ending on or after December 15, 2021, by SAS No. 139.]

.04 Section 806, Reporting on Compliance With Aspects of Contractual

Agreements or Regulatory Requirements in Connection With Audited Financial

Statements, addresses the auditor's responsibility and the form and content of

the report when the auditor is requested to report on the entity's compliance

with aspects of contractual agreements or regulatory requirements in connec-

tion with the audit of nancial statements.

Effective Date

.05 This section is effective for audits of nancial statements for periods

ending on or after December 15, 2012.

1326 Special Considerations

Objective

.06 The objective of the auditor, when applying generally accepted auditing

standards (GAAS) in an audit of nancial statements prepared in accordance

with a special purpose framework, is to address appropriately the special con-

siderations that are relevant to

a. the acceptance of the engagement,

b. the planning and performance of that engagement, and

c. forming an opinion and reporting on the nancial statements.

Deﬁnitions

.07 For purposes of GAAS, the following terms have the meanings at-

tributed as follows:

Special purpose nancial statements. Financial statements pre-

pared in accordance with a special purpose framework.

Special purpose framework. A nancial reporting framework

other than generally accepted accounting principles (GAAP) that

is one of the following bases of accounting: (Ref: par. .A6)

a. Cash basis. A basis of accounting that the entity uses to

record cash receipts and disbursements and modications

of the cash basis having substantial support (for example,

recording depreciation on xed assets).

b. Tax basis. A basis of accounting that the entity uses to

le its tax return for the period covered by the nancial

statements.

c. Regulatory basis. A basis of accounting that the entity

uses to comply with the requirements or nancial report-

ing provisions of a regulatory agency to whose jurisdiction

the entity is subject (for example, a basis of accounting that

insurance companies use pursuant to the accounting prac-

tices prescribed or permitted by a state insurance commis-

sion).

d. Contractual basis. A basis of accounting that the entity

uses to comply with an agreement between the entity and

one or more third parties other than the auditor.

e. Other basis. A basis of accounting that uses a denite set

of logical, reasonable criteria that is applied to all material

items appearing in nancial statements.

The cash basis, tax basis, regulatory basis, and other basis of ac-

counting are commonly referred to as other comprehensive bases

of accounting.

[As amended, effective for audits of nancial statements for periods ending on

or after December 15, 2012, by SAS No. 127. As amended, effective for audits of

nancial statements prepared in accordance with a special purpose framework

for periods ending on or after December 15, 2021, by SAS No. 139.]

.08 Reference to nancial statements in this section means "a complete set

of special purpose nancial statements."

The requirements of the applicable

Paragraphs .14 and .A9 of section 200, Overall Objectives of the Independent Auditor and the

Conduct of an Audit in Accordance With Generally Accepted Auditing Standards.

Special Considerations — Audits of Financial Statements 1327

nancial reporting framework determine the presentation, structure, and con-

tent of the nancial statements and what constitutes a complete set of nancial

statements. [As amended, effective for audits of nancial statements prepared

in accordance with a special purpose framework for periods ending on or after

December 15, 2021, by SAS No. 139.]

.09 Reference to GAAP in GAAS means generally accepted account-

ing principles promulgated by bodies designated by the Council of the

AICPA (Council) pursuant to the "Compliance With Standards Rule" (ET sec.

1.310.001) and the "Accounting Principles Rule" (ET sec. 1.320.001) of the

AICPA Code of Professional Conduct. [Revised, January 2015, to reect con-

forming changes necessary due to the issuance of the revised AICPA Code of

Professional Conduct, effective December 15, 2014. As amended, effective for

audits of nancial statements prepared in accordance with a special purpose

framework for periods ending on or after December 15, 2021, by SAS No. 139.]

Requirements

Considerations When Accepting the Engagement

Acceptability of the Financial Reporting Framework (Ref: par. .A7–.A10)

.10 Section 210, Terms of Engagement, requires the auditor to determine

the acceptability of the nancial reporting framework applied in the prepara-

tion of the nancial statements.

In an audit of special purpose nancial state-

ments, the auditor should obtain an understanding of

a. the purpose for which the nancial statements are prepared,

b. the intended users, and

c. the steps taken by management to determine that the applicable

nancial reporting framework is acceptable in the circumstances.

Preconditions for an Audit (Ref: par. .A11)

.11 Section 210 requires the auditor to establish whether the preconditions

for an audit are present, including determining whether the nancial report-

ing framework to be applied in the preparation of the nancial statements is

acceptable.

In an audit of special purpose nancial statements, the auditor

should obtain the agreement of management that it acknowledges and under-

stands its responsibility to include all informative disclosures that are appro-

priate for the special purpose framework used to prepare the entity's nancial

statements, including

a. a description of the special purpose framework, including a sum-

mary of signicant accounting policies, and how the framework

differs from GAAP, the effects of which need not be quantied.

b. informative disclosures similar to those required by GAAP, in the

case of special purpose nancial statements that contain items

that are the same as, or similar to, those in nancial statements

prepared in accordance with GAAP.

c. a description of any signicant interpretations of the contract on

which the special purpose nancial statements are based, in the

Paragraph .06a of section 210, Terms of Engagement.

Paragraph .06 of section 210.

1328 Special Considerations

case of special purpose nancial statements prepared in accor-

dance with a contractual basis of accounting.

d. additional disclosures beyond those specically required by the

framework that may be necessary for the special purpose nan-

cial statements to achieve fair presentation. (Ref: par. .A12)

[As amended, effective for audits of nancial statements for periods ending on

or after December 15, 2012, by SAS No. 127.]

Considerations When Planning and Performing the Audit

(Ref: par. .A13–.A17)

.12 Section 200, Overall Objectives of the Independent Auditor and the Con-

duct of an Audit in Accordance With Generally Accepted Auditing Standards,

requires the auditor to comply with all AU-C sections relevant to the audit.

In planning and performing an audit of special purpose nancial statements,

the auditor should adapt and apply all AU-C sections relevant to the audit as

necessary in the circumstances of the engagement.

.13 Section 315, Understanding the Entity and Its Environment and As-

sessing the Risks of Material Misstatement, requires the auditor to obtain an

understanding of the entity's selection and application of accounting policies.

In the case of special purpose nancial statements prepared in accordance with

a contractual basis of accounting, the auditor should obtain an understanding

of any signicant interpretations of the contract that management made in the

preparation of those nancial statements. An interpretation is signicant when

adoption of another reasonable interpretation would have produced a material

difference in the information presented in the nancial statements.

Auditor’s Responsibilities Regarding the Entity’s Ability to

Continue as a Going Concern

.14 Irrespective of whether the going concern basis of accounting is rele-

vant to the preparation of the special purpose nancial statements, the require-

ments of section 570 apply regarding the auditor's responsibilities to perform

the following tasks: (Ref: par. .A18)

a. Based on the audit evidence obtained, conclude whether, in the

auditor's judgment, there are conditions or events, considered in

the aggregate, that raise substantial doubt about the entity's abil-

ity to continue as a going concern for a reasonable period of time.

b. When such substantial doubt exists, evaluate the adequacy of the

nancial statement disclosures.

[Paragraph added, effective for audits of nancial statements prepared in ac-

cordance with a special purpose framework for periods ending on or after

December 15, 2021, by SAS No. 139.]

Paragraph .20 of section 200.

Paragraph .12c of section 315, Understanding the Entity and Its Environment and Assessing the

Risks of Material Misstatement.

Paragraphs .20–.22 and .A46 of section 570, The Auditor's Consideration of an Entity's Ability

to Continue as a Going Concern. [Footnote added, effective for audits of nancial statements prepared

in accordance with a special purpose framework for periods ending on or after December 15, 2021, by

SAS No. 139]

Special Considerations — Audits of Financial Statements 1329

Forming an Opinion and Reporting Considerations

.15 When forming an opinion and reporting on special purpose nancial

statements, the auditor should apply the requirements in section 700, Forming

an Opinion and Reporting on Financial Statements, or section 703, Forming

an Opinion and Reporting on Financial Statements of Employee Benet Plans

Subject to ERISA. When, in forming an opinion, the auditor concludes that a

modication to the auditor's opinion on the nancial statements is necessary,

the auditor should apply the requirements in section 705, Modications to the

Opinion in the Independent Auditor's Report. (Ref: par. .A19–.A22) [Paragraph

renumbered and amended, effective for audits of nancial statements prepared

in accordance with a special purpose framework for periods ending on or after

December 15, 2021, by SAS No. 139.]

Description of the Applicable Financial Reporting Framework

(Ref: par. .A23–.A24)

.16 Section 700 requires the auditor to evaluate whether the nancial

statements adequately refer to or describe the applicable nancial reporting

framework.

In an audit of special purpose nancial statements, the auditor

should evaluate whether the nancial statements are suitably titled, include

a summary of signicant accounting policies, and adequately describe how the

special purpose framework differs from GAAP. The effects of these differences

need not be quantied. [Paragraph renumbered by the issuance of SAS No. 139,

March 2020.]

.17 In the case of special purpose nancial statements prepared in accor-

dance with a contractual basis of accounting, the auditor should also evaluate

whether the nancial statements adequately describe any signicant interpre-

tations of the contract on which the nancial statements are based. [Paragraph

renumbered by the issuance of SAS No. 139, March 2020.]

Fair Presentation (Ref: par. .A25–.A29)

.18 Section 700 requires the auditor to evaluate whether the nancial

statements achieve fair presentation.

In an audit of special purpose nan-

cial statements when the special purpose nancial statements contain items

that are the same as, or similar to, those in nancial statements prepared in

accordance with GAAP, the auditor should evaluate whether

a. the nancial statements include informative disclosures similar

to those required by GAAP, and

b. additional disclosures, beyond those specically required by the

framework, related to matters that are not specically identied

on the face of the nancial statements or other disclosures are

necessary for the nancial statements to achieve fair presenta-

tion.

[Paragraph renumbered and amended, effective for audits of nancial state-

ments prepared in accordance with a special purpose framework for periods

ending on or after December 15, 2021, by SAS No. 139.]

Paragraph .15 of section 700, Forming an Opinion and Reporting on Financial Statements. [Foot-

note renumbered and amended, effective for audits of nancial statements prepared in accordance

with a special purpose framework for periods ending on or after December 15, 2021, by SAS No. 139].

Paragraph .16 or section 700. [Footnote renumbered by the issuance of SAS No. 139, March

2020.]

1330 Special Considerations

Auditor’s Report

.19 Section 700 addresses the form and content of the auditor's report, in-

cluding the specic ordering for certain elements. In the case of an auditor's

report on special purpose nancial statements

a. the auditor's report should describe the purpose for which the

nancial statements are prepared or refer to a note in the spe-

cial purpose nancial statements that contains that information,

when the nancial statements are prepared in accordance with

i. a regulatory or contractual basis of accounting or

ii. an other basis of accounting, and the auditor is required to

restrict use of the auditor's report pursuant to paragraph

.06a–b of section 905, Alert That Restricts the Use of the

Auditor's Written Communication. (Ref: par. .A30)

b. if management has a choice of nancial reporting frameworks

in the preparation of the special purpose nancial statements,

the explanation of management's responsibility for the nancial

statements should also make reference to its responsibility for

determining that the applicable nancial reporting framework is

acceptable in the circumstances.

[As amended, effective for audits of nancial statements for periods ending on

or after December 15, 2012, by SAS No. 127. Paragraph subsequently renum-

bered and amended, effective for audits of nancial statements prepared in

accordance with a special purpose framework for periods ending on or after

December 15, 2021, by SAS No. 139.]

Alerting Readers in an Emphasis-of-Matter Paragraph That the Financial

Statements Are Prepared in Accordance With a Special Purpose

Framework (Ref: par. .A31)

.20 Except for the circumstances described in paragraph .22, the auditor's

report on special purpose nancial statements should include an emphasis-of-

matter paragraph,

under an appropriate heading, that includes the following:

a. A statement that the nancial statements are prepared in accor-

dance with a special purpose framework

b. A reference to the note to the nancial statements that describes

that framework

c. A statement that the special purpose framework is a basis of ac-

counting other than GAAP.

d. When a description of the purpose for which the nancial state-

ments are prepared or a reference to a note in the special purpose

nancial statements that contains that information is required

pursuant to paragraph .19a, a statement that, as a result, the -

nancial statements may not be suitable for another purpose.

[Paragraph renumbered and amended, effective for audits of nancial state-

ments prepared in accordance with a special purpose framework for periods

ending on or after December 15, 2021, by SAS No. 139.]

Paragraphs .06–.07 of section 706, Emphasis-of-Matter Paragraphs and Other-Matter Para-

graphs in the Independent Auditor's Report.

Paragraph .06 of section 905, Alert That Restricts the Use of the Auditor's Written Commu-

nication. [Footnote added, effective for audits of nancial statements prepared in accordance with a

special purpose framework for periods ending on or after December 15, 2021, by SAS No. 139.]

Special Considerations — Audits of Financial Statements 1331

Restricting the Use of the Auditor’s Report in an Other-Matter Paragraph

(Ref: par. .A32–.A33)

.21 Except for the circumstances described in paragraph .22, the auditor's

report on special purpose nancial statements should include an other-matter

paragraph,

under an appropriate heading, that restricts

the use of the au-

ditor's report when the special purpose nancial statements are prepared in

accordance with

a. a contractual basis of accounting,

b. a regulatory basis of accounting, or

c. an other basis of accounting when required pursuant to para-

graph .06a–b of section 905.

[As amended, effective for the auditor's written communications related to au-

dits of nancial statements for periods ending on or after December 15, 2012,

by SAS No. 125. As amended, effective for audits of nancial statements for pe-

riods ending on or after December 15, 2012, by SAS No. 127. Paragraph subse-

quently renumbered and amended, effective for audits of nancial statements

prepared in accordance with a special purpose framework for periods ending

on or after December 15, 2021, by SAS No. 139.]

Regulatory Basis Financial Statements Intended for General Use

(Ref: par. .A34)

.22 If the special purpose nancial statements are prepared in accordance

with a regulatory basis of accounting, and the special purpose nancial state-

ments together with the auditor's report are intended for general use, the au-

ditor should not include the emphasis-of-matter or other-matter paragraphs re-

quired by paragraphs .20–.21. Instead, the auditor should express an opinion

about whether the special purpose nancial statements are presented fairly, in

all material respects, in accordance with GAAP. The auditor should also, in a

separate paragraph, express an opinion about whether the nancial statements

are prepared in accordance with the special purpose framework. [Paragraph

renumbered by the issuance of SAS No. 139, March 2020.]

Auditor’s Report Prescribed by Law or Regulation (Ref: par. .A35–.A38)

.23 If the auditor is required by law or regulation to use a specic layout,

form, or wording of the auditor's report, the auditor's report should refer to

GAAS only if the auditor's report includes, at a minimum, each of the following

elements:

a. A title that clearly indicates that it is the report of an independent

auditor

b. An addressee

c. A section that

i. identies the special purpose nancial statements that

have been audited and

Paragraph .07 of section 706. [Footnote renumbered by the issuance of SAS No. 139, March

2020.]

See paragraphs .06a–b and .07 of section 905. [Footnote amended, effective for the auditor's

written communications related to audits of nancial statements for periods ending on or after De-

cember 15, 2012, by SAS No. 125. Footnote renumbered and amended, effective for audits of nancial

statements prepared in accordance with a special purpose framework for periods ending on or after

December 15, 2021, by SAS No. 139.]

1332 Special Considerations

ii. contains an expression of opinion on the special purpose -

nancial statements and a reference to the special purpose

framework used to prepare the nancial statements and,

if applicable, an opinion on whether the special purpose

nancial statements are presented fairly, in all material

respects, in accordance with GAAP when required by para-

graph .22

d. A description of the purpose for which the nancial statements

are prepared when required by paragraph .19a

e. A statement that the auditor is required to be independent of the

entity and to meet the auditor's other ethical responsibilities, in

accordance with the relevant ethical requirements relating to the

audit

f. When applicable, a section that addresses the reporting require-

ments in paragraphs .24–.27 of section 570

g. A description of management's responsibilities for the prepara-

tion and fair presentation of the special purpose nancial state-

ments that addresses, and is consistent with, the requirements in

paragraphs .31–.33 of section 700

h. A reference to management's responsibility for determining that

the applicable nancial reporting framework is acceptable in the

circumstances when required by paragraph .19b

i. If applicable, a reference to the law or regulation and a descrip-

tion of the auditor's responsibilities for an audit of nancial state-

ments that addresses, and is consistent with, the requirements in

paragraphs .35–.37 of section 700

j. When applicable, a section that addresses the reporting require-

ments in paragraph .24 of section 720, The Auditor's Responsibil-

ities Relating to Other Information Included in Annual Reports

k. An emphasis-of-matter paragraph that

i. when required by paragraph .20

(1) indicates that the nancial statements are pre-

pared in accordance with a special purpose frame-

work

(2) refers to the note to the nancial statements that

describes that framework

(3) states that the special purpose framework is a ba-

sis of accounting other than GAAP, and

ii. when required by paragraph .20d

(1) describes the purpose for which the nancial

statements are prepared or refers to a note in

the special purpose nancial statements that con-

tains that information, and

(2) states that, as a result, the nancial statements

may not be suitable for another purpose

l. An other-matter paragraph that restricts the use of the auditor's

report when required by paragraph .21

m. The signature of the auditor's rm

Paragraph .06 of section 905.

Special Considerations — Audits of Financial Statements 1333

n. The city and state where the auditor's report is issued

o. The date of the auditor's report

[Paragraph renumbered and amended, effective for audits of nancial state-

ments prepared in accordance with a special purpose framework for periods

ending on or after December 15, 2021, by SAS No. 139.]

.24 If the prescribed specic layout, form, or wording of the auditor's re-

port is not acceptable or would cause an auditor to make a statement that the

auditor has no basis to make, the auditor should reword the prescribed form of

report or attach an appropriately worded separate report. [Paragraph renum-

bered by the issuance of SAS No. 139, March 2020.]

Application and Other Explanatory Material

Introduction

Scope of This Section (Ref: par. .01)

.A1 Special purpose nancial statements may be prepared for use by regu-

latory bodies, the parties to a contract or agreement, or other specied parties.

For example, a loan agreement may require the borrower to prepare consoli-

dated nancial statements for the lender presented on a contractual basis of

accounting, which is not in accordance with accounting principles generally ac-

cepted in the United States of America (U.S. GAAP) or International Financial

Reporting Standards promulgated by the International Accounting Standards

Board.

.A2 There may be circumstances in which a regulatory or contractual ba-

sis of accounting is based on a general purpose framework, such as U.S. GAAP,

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 nancial statements to

be prepared in accordance with most, but not all, of U.S. GAAP. If the nan-

cial statements purport to be prepared in accordance with a general purpose

framework and such nancial statements are materially misstated due to a

departure from that framework, section 705 applies. [As amended, effective for

audits of nancial statements prepared in accordance with a special purpose

framework for periods ending on or after December 15, 2021, by SAS No. 139.]

.A3 When it is acceptable in the circumstances of the engagement to re-

port, in accordance with this section, on special purpose nancial statements

that purport to be prepared in accordance with a regulatory or contractual basis

of accounting that is based on a general purpose framework, it is inappropriate

for the description of the applicable nancial reporting framework in the special

purpose nancial statements to imply that the special purpose framework in-

cludes all requirements of, or is the same as, the nancial reporting framework

on which the special purpose framework is based. In the example of the contract

in paragraph .A2, the description of the applicable nancial reporting frame-

work would refer to the nancial reporting provisions of the contract, rather

than make reference to U.S. GAAP. The requirements in paragraphs .20–.22

are designed to avoid misunderstandings about compliance with the general

purpose framework. [As amended, effective for audits of nancial statements

The term general purpose framework is dened in paragraph .10 of section 700. [Footnote

renumbered and amended, effective for audits of nancial statements prepared in accordance with

a special purpose framework for periods ending on or after December 15, 2021, by SAS No. 139.]

1334 Special Considerations

prepared in accordance with a special purpose framework for periods ending

on or after December 15, 2021, by SAS No. 139.]

.A4 Financial statements prepared in accordance with a special purpose

framework may be the only nancial statements an entity prepares. Such spe-

cial purpose nancial statements may be used by users other than those for

whom the nancial reporting framework is designed. Despite the broad dis-

tribution of the nancial statements, the nancial statements are still consid-

ered to be special purpose nancial statements for purposes of GAAS. The re-

quirement in paragraph .20 is designed to avoid misunderstandings about the

framework used to prepare the nancial statements. [As amended, effective for

audits of nancial statements for periods ending on or after December 15, 2012,

by SAS No. 127. As amended, effective for audits of nancial statements pre-

pared in accordance with a special purpose framework for periods ending on or

after December 15, 2021, by SAS No. 139.]

.A5 Section 910, Financial Statements Prepared in Accordance With a

Financial Reporting Framework Generally Accepted in Another Country, ad-

dresses circumstances in which an auditor practicing in the United States is en-

gaged to report on nancial statements that have been prepared in accordance

with a nancial reporting framework generally accepted in another country not

adopted by a body designated by the Council of the AICPA (Council) to promul-

gate generally accepted accounting principles (GAAP) when such audited nan-

cial statements are intended for use outside the United States. [As amended,

effective for audits of nancial statements for periods ending on or after De-

cember 15, 2012, by SAS No. 127. Paragraph subsequently renumbered and

amended, effective for audits of nancial statements prepared in accordance

with a special purpose framework for periods ending on or after December 15,

2021, by SAS No. 139.]

Deﬁnitions

Special Purpose Financial Statements and Special Purpose Frameworks

(Ref: par. .07)

.A6 Certain regulators, including state and local government legislators,

regulatory agencies, or departments, require nancial statements to be pre-

pared in accordance with a nancial reporting framework that is based on a

framework promulgated by an authorized or recognized standard-setting orga-

nization (for example, FASB or GASB), but does not include all of the require-

ments of that framework. Such frameworks are regulatory bases of account-

ing, as described in paragraph .07. In some circumstances, however, the cash

or tax basis of accounting may be permitted by a regulator. For purposes of

this section, the cash and tax bases of accounting are not regulatory bases of

accounting. [Paragraph renumbered and amended, effective for audits of nan-

cial statements for periods ending on or after December 15, 2012, by SAS No.

127. Paragraph subsequently renumbered and amended, effective for audits of

nancial statements prepared in accordance with a special purpose framework

for periods ending on or after December 15, 2021, by SAS No. 139.]

Considerations When Accepting the Engagement

Acceptability of the Financial Reporting Framework (Ref: par. .10)

.A7 In the case of special purpose nancial statements, the nancial infor-

mation needs of the intended users are a factor in determining the acceptability

Special Considerations — Audits of Financial Statements 1335

of the nancial reporting framework applied in the preparation of the nancial

statements. [Paragraph renumbered by the issuance of SAS No. 139, March

2020.]

.A8 The applicable nancial reporting framework may encompass the -

nancial reporting standards established by an organization that is authorized

or recognized to promulgate standards for special purpose nancial 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

circumstances, law or regulation may prescribe the nancial reporting frame-

work to be used by management in the preparation of special purpose nancial

statements for a certain type of entity. For example, a regulator may establish

nancial reporting provisions to meet the requirements of that regulator. In the

absence of indications to the contrary, such a nancial reporting framework is

presumed acceptable for special purpose nancial statements prepared by such

an entity. [Paragraph renumbered by the issuance of SAS No. 139, March 2020.]

.A9 The acceptability of the nancial reporting framework in the circum-

stances of the engagement is determined by considering whether the frame-

work exhibits attributes normally exhibited by acceptable nancial reporting

frameworks. Section 210 discusses the attributes of acceptable nancial re-

porting frameworks, which provide management with an appropriate basis for

preparing the nancial statements and the auditor with suitable criteria for au-

diting the nancial statements.

In the case of a special purpose framework,

the relative importance to a particular engagement of each of the attributes

normally exhibited by acceptable nancial reporting frameworks is a matter of

professional judgment. For example, for purposes of establishing the value of

net assets of an entity at the date of its sale, the seller and purchaser may have

agreed that conservative estimates of allowances for uncollectible accounts re-

ceivable are appropriate for their needs, even though such nancial information

may be biased when compared with nancial information prepared in accor-

dance with a general purpose framework. [As amended, effective for audits of

nancial statements for periods ending on or after December 15, 2012, by SAS

No. 127. Paragraph renumbered by the issuance of SAS No. 139, March 2020.]

.A10 In the case of nancial statements prepared in accordance with a

contractual basis of accounting, the parties to the contract or agreement may

need to agree on the signicant interpretations of the contract on which the

special purpose nancial statements are based. If agreement cannot be reached,

the auditor may determine that the framework is not acceptable. [Paragraph

renumbered by the issuance of SAS No. 139, March 2020.]

Preconditions for an Audit (Ref: par. .11)

.A11 Section 210 also requires the agreed-upon terms of the audit engage-

ment to include references to the expected form and content of any reports to be

issued by the auditor and a statement that there may be circumstances in which

a report may differ from its expected form and content.

The auditor may dis-

cuss with management and, when appropriate, those charged with governance

how an auditor's report on nancial statements prepared in accordance with a

special purpose framework differs from an auditor's report on nancial state-

ments prepared in accordance with a general purpose framework. Discussing

Paragraphs .A2–.A3 of section 210, Terms of Engagement. [Footnote added, effective for audits

of nancial statements for periods ending on or after December 15, 2012, by SAS No. 127. Footnote

renumbered by the issuance of SAS No. 139, March 2020.]

Paragraph .10f of section 210.

1336 Special Considerations

the expected form and content of the auditor's report may assist management

in understanding its responsibilities related to the audit engagement. [Para-

graph renumbered and amended, effective for audits of nancial statements

prepared in accordance with a special purpose framework for periods ending

on or after December 15, 2021, by SAS No. 139.]

Achieving Fair Presentation (Ref: par. .11d)

.A12 In accordance with section 700, the auditor's evaluation about

whether the nancial statements achieve fair presentation in accordance with

the applicable nancial reporting framework requires consideration of the fol-

lowing:

a. The overall presentation, structure and content of the nancial

statements

b. Whether the nancial statements represent the underlying trans-

actions and events in a manner that achieves fair presentation.

Also see paragraphs .A25–.A29 of this section. [Paragraph renumbered and

amended, effective for audits of nancial statements prepared in accordance

with a special purpose framework for periods ending on or after December 15,

2021, by SAS No. 139.]

Considerations When Planning and Performing the Audit

(Ref: par. .12–.13)

.A13 Section 200 requires the auditor to comply with (a) relevant ethical

requirements relating to nancial statement audit engagements and (b)allAU-

C sections relevant to the audit. It also requires the auditor to comply with each

requirement of an AU-C section unless, in the circumstances of the audit, the

entire AU-C section is not relevant or the requirement is not relevant because it

is conditional and the condition does not exist. In rare circumstances, the audi-

tor may judge it necessary to depart from a relevant presumptively mandatory

requirement in an AU-C section by performing alternative audit procedures

to achieve the intent of that requirement.

[Paragraph renumbered by the is-

suance of SAS No. 139, March 2020.]

.A14 An AU-C section is relevant to the audit when the AU-C section is in

effect and the circumstances addressed by the AU-C section exist.

In an audit

of special purpose nancial statements, some of the requirements within the

relevant AU-C sections may need to be adapted by the auditor. For example, in

section 320, Materiality in Planning and Performing an Audit, judgments about

matters that are material to users of the nancial statements are based on a

consideration of the common nancial information needs of users as a group.

In an audit of special purpose nancial statements, those judgments may be

Paragraph .14 of section 200. [Footnote renumbered by the issuance of SAS No. 127, January

2013. Footnote renumbered and amended, effective for audits of nancial statements prepared in

accordance with a special purpose framework for periods ending on or after December 15, 2021, by

SAS No. 139.]

Paragraphs .16, .20, and .24–.26 of section 200. [Footnote renumbered by the issuance of SAS

No. 127, January 2013. Footnote subsequently renumbered by the issuance of SAS No. 139, March

2020.]

Paragraph .20 of section 200. [Footnote renumbered by the issuance of SAS No. 127, January

2013. Footnote renumbered by the issuance of SAS No. 127, January 2013. Footnote subsequently

renumbered by the issuance of SAS No. 139, March 2020.]

Paragraph .02 of section 320, Materiality in Planning and Performing an Audit. [Footnote

renumbered by the issuance of SAS No. 127, January 2013. Footnote subsequently renumbered by

the issuance of SAS No. 139, March 2020.]

Special Considerations — Audits of Financial Statements 1337

based on a consideration of the nancial information needs of the intended

users.

[Paragraph added, effective for audits of nancial statements for periods ending

on or after December 15, 2017, by SAS No. 132. Paragraph renumbered by the

issuance of SAS No. 139, March 2020.]

[.A15] [Paragraph renumbered and deleted by the issuance of SAS No.

139, March 2020.]

[ 21]

.A16 In the case of special purpose nancial statements, such as those pre-

pared in accordance with a contractual basis of accounting, management may

agree with the intended users on a threshold below which misstatements iden-

tied during the audit will not be corrected or otherwise adjusted. The exis-

tence of such a threshold does not relieve the auditor from the requirement

to determine materiality in accordance with section 320 for purposes of plan-

ning and performing the audit of the special purpose nancial statements. With

respect to interpretations of the contract on which the special purpose nan-

cial statements are based, the auditor may determine that an interpretation is

signicant based on qualitative considerations. [Paragraph renumbered by the

issuance of SAS No. 132, February 2017. Paragraph subsequently renumbered

by the issuance of SAS No. 139, March 2020.]

.A17 Communication with those charged with governance in accordance

with GAAS is based on the relationship between those charged with gover-

nance and the nancial statements subject to audit, in particular, whether

those charged with governance are responsible for overseeing the preparation

of those nancial statements. In the case of special purpose nancial state-

ments, those charged with governance may not have such a responsibility; for

example, when the nancial information is prepared solely for management's

use. In such cases, the requirements of section 260, The Auditor's Communi-

cation With Those Charged With Governance, may not be relevant to the audit

of the special purpose nancial statements, except when the auditor is also re-

sponsible for the audit of the entity's general purpose nancial statements or,

for example, has agreed to communicate with those charged with governance

of the entity relevant matters identied during the audit of the special purpose

nancial statements. [Paragraph renumbered by the issuance of SAS No. 132,

February 2017. Paragraph subsequently renumbered by the issuance of SAS

No. 139, March 2020.]

Auditor’s Responsibilities Regarding the Entity’s Ability to

Continue as a Going Concern (Ref: par. .14)

Relevance of Going Concern Basis of Accounting to a Special

Purpose Framework

.A18 Special purpose nancial statements may or may not be prepared in

accordance with an applicable nancial reporting framework for which the go-

ing concern basis of accounting is relevant. The going concern basis of account-

ing is relevant to a special purpose framework if the special purpose framework

requires management, in specied circumstances, to use a basis of accounting

other than the going concern basis of accounting. For example, the AICPA's Fi-

nancial Reporting Framework for Small- and Medium-Sized Entities requires

management to assess whether the going concern basis of accounting is appro-

priate, and if not, to use the liquidation basis of accounting. In contrast, the

[ 21]

[Footnote renumbered and deleted by the issuance of SAS No. 139, March 2020.]

1338 Special Considerations

cash or tax bases of accounting do not specify any alternative basis of account-

ing to be considered and, thus, do not require management to assess whether

the going concern basis of accounting is appropriate. Therefore, the going con-

cern basis of accounting is not relevant to special purpose nancial statements

prepared using those bases of accounting. Depending on the applicable nancial

reporting framework used in the preparation of the special purpose nancial

statements, the description in the auditor's report of management's responsi-

bilities relating to going concern may need to be adapted as necessary.

The

description in the auditor's report of the auditor's responsibilities may also need

to be adapted as necessary depending on how section 570 applies in the circum-

stances of the engagement.

[Paragraph added, effective for audits of nancial

statements prepared in accordance with a special purpose framework for peri-

ods ending on or after December 15, 2021, by SAS No. 139.]

.A19 Appendix A, "Overview of Reporting Requirements," provides an

overview of the reporting requirements depending on the special purpose

framework. The exhibit, "Illustrations of Auditor's Reports on Special Purpose

Financial Statements," contains illustrations of auditor's reports on special pur-

pose nancial statements. [Paragraph renumbered by the issuance of SAS No.

132, February 2017. Paragraph subsequently renumbered by the issuance of

SAS No. 139, March 2020.]

Application of Section 700 or Section 703 When Reporting on Special

Purpose Financial Statements

.A20 Paragraph .15 of this section requires the auditor to apply the re-

quirements in section 700 or section 703 when forming an opinion and report-

ing on special purpose nancial statements. In doing so, the auditor is also

required to apply the reporting requirements in other AU-C sections and may

nd the special considerations addressed in paragraphs .A18 and .A21–.A22

of this section helpful. [Paragraph added, effective for audits of nancial state-

ments prepared in accordance with a special purpose framework for periods

ending on or after December 15, 2021, by SAS No. 139.]

Key Audit Matters

.A21 For audits of special purpose nancial statements, section 701, Com-

municating Key Audit Matters in the Independent Auditor's Report, applies only

when the auditor is engaged to communicate key audit matters. [Paragraph

added, effective for audits of nancial statements prepared in accordance with

a special purpose framework for periods ending on or after December 15, 2021,

by SAS No. 139.]

Other Information

.A22 Section 720 addresses the auditor's responsibilities relating to other

information in an entity's annual report. In the context of this section, an an-

nual report is a document or combination of documents, the purpose of which

is to provide owners (or similar stakeholders) with information on matters pre-

sented in the special purpose nancial statements. The term similar stakehold-

ers includes specic users whose nancial information needs are met by the

special purpose framework used to prepare the special purpose nancial state-

ments. When the auditor determines that the entity has issued or plans to is-

sue an annual report, the requirements in section 720 apply to the audit of the

special purpose nancial statements. [Paragraph added, effective for audits of

Paragraph .32b of section 700.

Paragraph .36e of section 700.

Special Considerations — Audits of Financial Statements 1339

nancial statements prepared in accordance with a special purpose framework

for periods ending on or after December 15, 2021, by SAS No. 139.]

Forming an Opinion and Reporting Considerations

(Ref: par. .14)

Description of the Applicable Financial Reporting Framework

(Ref: par. .16–.17)

.A23 Terms such as balance sheet, statement of nancial position, state-

ment of income, statement of operations,andstatement of cash ows, or similar

unmodied titles, are generally understood to be applicable only to nancial

statements that are intended to present nancial position, results of operations,

or cash ows in accordance with GAAP. Accordingly, the auditor is required by

paragraph .16 to evaluate whether the nancial statements are suitably titled.

For example, cash basis nancial statements might be titled as a statement of

assets and liabilities arising from cash transactions or as a statement of rev-

enue collected and expenses paid; a nancial statement prepared on a regula-

tory basis of accounting might be titled as a statement of income — regulatory

basis. [Paragraph renumbered by the issuance of SAS No. 132, February 2017.

Paragraph subsequently renumbered by the issuance of SAS No. 139, March

2020.]

.A24 The description of how the special purpose framework differs from

GAAP ordinarily only includes the material differences between GAAP and the

special purpose framework. For example, if several items are accounted for dif-

ferently under the special purpose framework than they would be under U.S.

GAAP, but only the differences in how depreciation is calculated are material,

a brief description of the depreciation differences is all that would be necessary,

and the remaining differences need not be described. The differences need not

be quantied. [Paragraph renumbered by the issuance of SAS No. 132, Febru-

ary 2017. Paragraph subsequently renumbered by the issuance of SAS No. 139,

March 2020.]

Fair Presentation (Ref: par. .18)

.A25 Financial statements that achieve a fair presentation include all in-

formative disclosures that are appropriate for the applicable nancial report-

ing framework, including matters that affect their use, understanding, and

interpretation. Also refer to paragraph .A12. [Paragraph renumbered by the

issuance of SAS No. 132, February 2017. Paragraph subsequently renumbered

and amended, effective for audits of nancial statements prepared in accor-

dance with a special purpose framework for periods ending on or after Decem-

ber 15, 2021, by SAS No. 139.]

.A26 When the special purpose nancial statements contain items that are

the same as, or similar to, those in nancial statements prepared in accordance

with GAAP, informative disclosures similar to those required by GAAP are nec-

essary to achieve fair presentation. For example, nancial statements prepared

on a tax basis or on a modied cash basis of accounting usually reect depreci-

ation, long-term debt, and owners' equity. Thus, the informative disclosures for

depreciation, long-term debt, and owners' equity in such nancial statements

would be comparable to those in nancial statements prepared in accordance

with GAAP. [Paragraph renumbered by the issuance of SAS No. 132, February

2017. Paragraph subsequently renumbered by the issuance of SAS No. 139,

March 2020.]

1340 Special Considerations

.A27 Disclosures in special purpose nancial statements may substitute

qualitative information for some of the quantitative information required by

GAAP or may provide information that communicates the substance of those re-

quirements. For example, disclosing estimated percentages of revenues, rather

than amounts that GAAP presentations would require, may sufciently convey

the signicance of sales or leasing to related parties or major customers. [Para-

graph renumbered by the issuance of SAS No. 132, February 2017. Paragraph

subsequently renumbered by the issuance of SAS No. 139, March 2020.]

.A28 The auditor is also required by paragraph .18b to evaluate whether

additional disclosures, beyond those specically required by the framework, re-

lated to matters that are not specically identied on the face of the nancial

statements or other disclosures may be necessary for the special purpose nan-

cial statements to achieve fair presentation. For example, these disclosures may

include matters about related party transactions, restrictions on assets and

owners' equity, subsequent events, and signicant uncertainties. In such cir-

cumstances, the special purpose nancial statements would include the same

disclosure required by GAAP or disclosure that communicates the substance of

those requirements. [Paragraph renumbered by the issuance of SAS No. 132,

February 2017. Paragraph subsequently renumbered and amended, effective

for audits of nancial statements prepared in accordance with a special pur-

pose framework for periods ending on or after December 15, 2021, by SAS No.

139.]

.A29 Appendix B, "Fair Presentation and Adequate Disclosures," provides

additional guidance on evaluating the adequacy of disclosures in nancial

statements prepared in accordance with a special purpose framework, includ-

ing matters related to the presentation of nancial statements. [Paragraph

renumbered by the issuance of SAS No. 132, February 2017. Paragraph sub-

sequently renumbered by the issuance of SAS No. 139, March 2020.]

Auditor’s Report (Ref: par. .18b)

.A30 When the special purpose nancial statements are prepared in ac-

cordance with a regulatory or contractual basis of accounting or an other basis

of accounting that requires an alert that restricts the use of the auditor's re-

port pursuant to paragraph .06a–b of section 905, the auditor is required by

paragraph .19a to describe the purpose for which the nancial statements are

prepared or refer to a note in the nancial statements that contains that infor-

mation. This is necessary to avoid misunderstandings when the special purpose

nancial statements are used for purposes other than those for which they were

intended. The note to the nancial statements may also describe any signicant

interpretations of the contract on which the nancial statements are based. [As

amended, effective for audits of nancial statements for periods ending on or

after December 15, 2012, by SAS No. 127. Paragraph renumbered by the is-

suance of SAS No. 132, February 2017. Paragraph subsequently renumbered

by the issuance of SAS No. 139, March 2020.]

Alerting Readers in an Emphasis-of-Matter Paragraph That the Financial

Statements Are Prepared in Accordance With a Special Purpose

Framework (Ref: par. .20)

.A31 Special purpose nancial statements may be used for purposes other

than those for which they were intended. To avoid misunderstandings, para-

graph .20 requires the auditor to include an emphasis-of-matter paragraph in

the auditor's report that alerts users of the auditor's report that the nan-

cial statements are prepared in accordance with a special purpose framework

and that the basis of accounting is a basis of accounting other than GAAP.

Special Considerations — Audits of Financial Statements 1341

[Paragraph renumbered by the issuance of SAS No. 132, February 2017. Para-

graph subsequently renumbered by the issuance of SAS No. 139, March 2020.]

Restricting the Use of the Auditor’s Report in an Other-Matter Paragraph

(Ref: par. .21)

.A32 Special purpose nancial statements prepared in accordance with a

contractual or regulatory basis of accounting are suitable only for a limited

number of users who can be presumed to have an adequate understanding of

such bases of accounting. For example, special purpose nancial statements

prepared in accordance with a contractual basis of accounting are developed

for and directed only to the parties to the contract or agreement. Accordingly,

the alert that restricts the use of the auditor's report is required due to the na-

ture of the report and the potential for the report to be taken out of the context

in which the auditor's report was intended to be used. Section 905, Alert That

Restricts the Use of the Auditor's Written Communication, addresses adding

other parties as specied parties. [As amended, effective for the auditor's writ-

ten communications related to audits of nancial statements for periods ending

on or after December 15, 2012, by SAS No. 125. Paragraph renumbered by the

issuance of SAS No. 132, February 2017. Paragraph subsequently renumbered

by the issuance of SAS No. 139, March 2020.]

.A33 In the case of special purpose nancial statements prepared in accor-

dance with a cash or tax basis of accounting, the auditor may consider it neces-

sary in the circumstances of the engagement to include an alert that restricts

the use of the auditor's report. [As amended, effective for the auditor's written

communications related to audits of nancial statements for periods ending on

or after December 15, 2012, by SAS No. 125. Paragraph renumbered by the is-

suance of SAS No. 132, February 2017. Paragraph subsequently renumbered

by the issuance of SAS No. 139, March 2020.]

Regulatory Basis Financial Statements Intended for General Use

(Ref: par. .22)

.A34 Special purpose nancial statements prepared in accordance with a

regulatory basis of accounting may be intended for general use. Such special

purpose nancial statements are intended for general use when the nancial

statements together with the auditor's report are intended for use by parties

other than those within the entity and the regulatory agencies to whose juris-

diction the entity is subject or when the nancial statements together with the

auditor's report are distributed by the entity to parties other than the regula-

tory agencies to whose jurisdiction the entity is subject, either voluntarily or

upon specic request. [Paragraph renumbered by the issuance of SAS No. 132,

February 2017. Paragraph subsequently renumbered and amended, effective

for audits of nancial statements prepared in accordance with a special pur-

pose framework for periods ending on or after December 15, 2021, by SAS No.

139.]

Auditor’s Report Prescribed by Law or Regulation (Ref: par. .23–.24)

.A35 The auditor may be required to comply with legal or regulatory re-

quirements in addition to GAAS. When this is the case, the auditor may be

required to use a layout, form, or wording in the auditor's report that differs

from that described in this section, such as when printed forms or schedules

designed or adopted by the bodies with which they are to be led prescribe the

wording of the auditor's report. [Paragraph renumbered by the issuance of SAS

No. 132, February 2017. Paragraph subsequently renumbered by the issuance

of SAS No. 139, March 2020.]

1342 Special Considerations

.A36 When the differences between the legal or regulatory requirements

and GAAS relate only to the layout, form, and wording of the auditor's report

and, at a minimum, each of the elements identied in paragraph .23 are in-

cluded in the auditor's report, the auditor's report may refer to GAAS. Accord-

ingly, in such circumstances the auditor is considered to have complied with

the requirements of GAAS, even when the layout, form, and wording used in

the auditor's report are specied by legal or regulatory reporting requirements.

Section 210 addresses circumstances in which law or regulation prescribes the

layout, form, or wording of the auditor's report in terms that are signicantly

different from the requirements of GAAS.

[Paragraph renumbered by the issuance of SAS No. 132, February 2017. Para-

graph subsequently renumbered by the issuance of SAS No. 139, March 2020.]

.A37 Some report forms can be made acceptable by inserting additional

wording to include the elements identied in paragraph .23. Other report forms

can be made acceptable only by complete revision because the prescribed lan-

guage of the report calls for statements by the auditor that are not consistent

with the auditor's function or responsibility; for example, a report form that re-

quests the auditor to certify the nancial statements. [Paragraph renumbered

by the issuance of SAS No. 132, February 2017. Paragraph subsequently renum-

bered by the issuance of SAS No. 139, March 2020.]

.A38 This guidance can be applied to other circumstances, for example,

reports on nancial statements prepared in accordance with a general purpose

framework for which a specic layout, form, or wording of the auditor's report

is required. [Paragraph renumbered by the issuance of SAS No. 132, February

2017. Paragraph subsequently renumbered by the issuance of SAS No. 139,

March 2020.]

Paragraph .18 of section 210. [Footnote renumbered by the issuance of SAS No. 127, January

2013. Footnote subsequently renumbered by the issuance of SAS No. 132, February 2017. Footnote

renumbered by the issuance of SAS No. 139, March 2020.]

Special Considerations — Audits of Financial Statements 1343

.A39

Appendix A — Overview of Reporting Requirements

The following table provides an overview of the reporting requirements depend-

ing on the special purpose framework:

Cash

Basis

Tax

Basis

Regulatory

Basis

Regulatory

Basis (General

Use)

Contractual

Basis

Other

Basis

Opinion(s) Single

opinion on

special

purpose

frame-

work

Single

opinion on

special

purpose

frame-

work

Single

opinion on

special

purpose

framework

Dual opinion on

special purpose

framework and

generally

accepted

accounting

principles

Single

opinion on

special

purpose

framework

Single

opinion on

special

purpose

framework

Description of

purpose for

which special

purpose nancial

statements are

prepared

No No Yes Yes Yes As required

by paragraph

.19a(ii)

Emphasis-of-

matter

paragraph

alerting readers

regarding the

preparation in

accordance with

a special purpose

framework

Yes Yes Yes No Yes Yes

Other-matter

paragraph

including an

alert restricting

the use of the

auditor's report

No No Yes No Yes As required

by paragraph

.21c

Exhibit A

Illustrations

1 2 3 4 5

[As amended, effective for the auditor's written communications related to au-

dits of nancial statements for periods ending on or after December 15, 2012,

by SAS No. 125. As amended, effective for audits of nancial statements for

periods ending on or after December 15, 2012, by SAS No. 127. Paragraph

Paragraph .22. [Footnote renumbered by the issuance of SAS No. 127, January 2013. Subse-

quently renumbered by issuance of SAS No. 139, March 2020.]

Paragraph .19aii. [Footnote renumbered by the issuance of SAS No. 127, January 2013. As

amended, effective for audits of nancial statements prepared in accordance with a special purpose

framework for periods ending on or after December 15, 2021, by SAS No. 139.]

Paragraphs .20 and .22. [Footnote renumbered by the issuance of SAS No. 127, January 2013.

As amended, effective for audits of nancial statements prepared in accordance with a special purpose

framework for periods ending on or after December 15, 2021, by SAS No. 139.]

Paragraphs .21–.22. [Footnote renumbered by the issuance of SAS No. 127, January 2013. As

amended, effective for audits of nancial statements prepared in accordance with a special purpose

framework for periods ending on or after December 15, 2021, by SAS No. 139.]

Paragraph .06a–b of section 905. [Footnote added, effective for audits of nancial statements

for periods ending on or after December 15, 2012, by SAS No. 127.]

1344 Special Considerations

renumbered by the issuance of SAS No. 132, February 2017. Paragraph subse-

quently renumbered and amended, effective for audits of nancial statements

prepared in accordance with a special purpose framework for periods ending

on or after December 15, 2021, by SAS No. 139.]

Special Considerations — Audits of Financial Statements 1345

.A40

Appendix B — Fair Presentation and Adequate

Disclosures (Ref: par. .A25–.A28)

When special purpose nancial statements contain items that are the same

as, or similar to, those in nancial statements prepared in accordance with

generally accepted accounting principles (GAAP), paragraph .18 requires the

auditor to evaluate whether, the nancial statements include informative dis-

closures similar to those required by GAAP. The auditor is also required to

evaluate whether additional disclosures, beyond those specically required by

the framework, related to matters that are not specically identied on the face

of the nancial statements or other disclosures are necessary for the nancial

statements to achieve fair presentation. This appendix provides guidance, in

addition to paragraphs .A25–.A28, on evaluating the adequacy of disclosures

in nancial statements prepared in accordance with a special purpose frame-

work, including matters related to the presentation of nancial statements.

If special purpose nancial statements contain items for which GAAP would

require disclosure, the nancial statements may either provide the relevant

disclosure that would be required for those items in a GAAP presentation or

provide information that communicates the substance of that disclosure. Like-

wise, if GAAP sets forth requirements that apply to the presentation of nan-

cial statements, special purpose nancial statements may either comply with

those requirements or provide information that communicates the substance

of those requirements, without modifying the format of the special purpose -

nancial statements. This may result in substituting qualitative information for

some of the quantitative information required for GAAP presentations, as in

the following examples:

•

Disclosure of the repayment terms of signicant long-term bor-

rowings may sufciently communicate information about future

principal reduction without providing the summary of principal

reduction during each of the next ve years.

•

Information about the effects of accounting changes, discontinued

operations, and extraordinary items, if applicable, could be dis-

closed in a note to the nancial statements without following the

GAAP presentation requirements in the statement of results of

operations, using those terms, or disclosing net-of-tax effects.

•

Instead of showing expenses by their functional classications

in certain industries, a statement of activities could present ex-

penses according to their natural classications, and a note to the

statement could use estimated percentages to communicate infor-

mation about expenses incurred by the major program and sup-

porting services.

•

Instead of showing the amounts of, and changes in, classes of

net assets without donor-imposed restrictions and with donor-

imposed restrictions in certain industries, a statement of assets

and liabilities could report total net assets, a related statement of

activities could report changes in those totals, and a note to the

FASB Accounting Standards Update (ASU) No. 2015-01 eliminated the concept of extraordi-

nary items. However, GASB generally accepted accounting principles still retain this concept. [Foot-

note added, effective for audits of nancial statements prepared in accordance with a special purpose

framework for periods ending on or after December 15, 2021, by SAS No. 139.]

1346 Special Considerations

nancial statements could provide information, using estimated

or actual amounts or percentages, about the restrictions on those

amounts and on any deferred restricted amounts, describe the ma-

jor restrictions, and provide information about signicant changes

in restricted amounts.

For special purpose nancial statements, GAAP disclosure requirements that

are not relevant to the measurement of the item need not be considered, as

illustrated by the following:

•

Fair value disclosures for debt and equity securities would not be

relevant when the basis of presentation does not adjust the cost

of such securities to their fair value.

•

For a sponsor of a dened benet plan, disclosures related to actu-

arial calculations for contributions to dened benet plans would

not be relevant in nancial statements prepared in accordance

with the cash or tax basis of accounting.

•

Disclosures related to the use of estimates would not be relevant

in a presentation that has no estimates.

Special purpose nancial statements may not include a statement of cash ows.

If a presentation of cash receipts and disbursements is presented in a format

similar to a statement of cash ows or if the entity chooses to present such a

statement, the statement would either conform to the requirements for a GAAP

presentation or communicate their substance. As an example, the statement of

cash ows might disclose noncash acquisitions through captions on its face.

[Paragraph renumbered by the issuance of SAS No. 132, February 2017. Para-

graph subsequently renumbered and amended, effective for audits of nancial

statements prepared in accordance with a special purpose framework for peri-

ods ending on or after December 15, 2021, by SAS No. 139.]

FASB ASU No. 2016-14, Not-for-Prot Entities (Topic 958): Presentation of Financial Statements

of Not-for-Prot Entities. [Footnote added, effective for audits of nancial statements prepared in ac-

cordance with a special purpose framework for periods ending on or after December 15, 2021, by SAS

No. 139.]

Special Considerations — Audits of Financial Statements 1347

.A41

Exhibit — Illustrations of Auditor’s R eports on Special

Purpose Financial Statements (Ref: par. .A18)

Illustration 1 — An Auditor's Report on a Complete Set of Financial

Statements Prepared in Accordance With the Cash Basis of Accounting

Illustration 2 — An Auditor's Report on a Complete Set of Financial

Statements Prepared in Accordance With the Tax Basis of Accounting

Illustration 3 — An Auditor's Report on a Complete Set of Financial

Statements Prepared in Accordance With a Regulatory Basis of Ac-

counting (the Financial Statements Together With the Auditor's Report

Are Not Intended for General Use)

Illustration 4 — An Auditor's Report on a Complete Set of Financial

Statements Prepared in Accordance With a Regulatory Basis of Ac-

counting (the Financial Statements Together With the Auditor's Report

Are Intended for General Use)

Illustration 5 — An Auditor's Report on a Complete Set of Financial

Statements Prepared in Accordance With a Contractual Basis of Ac-

counting

1348 Special Considerations

Illustration 1 — An Auditor’s Report on a Complete Set of

Financial Statements Prepared in Accordance With the Cash

Basis of Accounting

Circumstances include the following:

•

The nancial statements have been prepared by management of

the entity in accordance with the cash basis of accounting (that is,

a special purpose framework).

•

Management has a choice of nancial reporting frameworks.

Independent Auditor's Report

[Appropriate Addressee]

Report on the Audit of Financial Statements

Opinion

We have audited the nancial statements of ABC Partnership, which comprise

the statement of assets and liabilities arising from cash transactions as of De-

cember 31, 20X1, and the related statement of revenue collected and expenses

paid for the year then ended, and the related notes to the nancial statements.

In our opinion, the accompanying nancial statements present fairly, in all ma-

terial respects, the assets and liabilities arising from cash transactions of ABC

Partnership as of December 31, 20X1, and its revenue collected and expenses

paid during the year then ended in accordance with the cash basis of accounting

described in Note X.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally ac-

cepted in the United States of America (GAAS). Our responsibilities under

those standards are further described in the Auditor's Responsibilities for the

Audit of the Financial Statements section of our report. We are required to be

independent of ABC Partnership, and to meet our other ethical responsibilities,

in accordance with the relevant ethical requirements relating to our audit. We

believe that the audit evidence we have obtained is sufcient and appropriate

to provide a basis for our audit opinion.

Emphasis of Matter — Basis of Accounting

We draw attention to Note X of the nancial statements, which describes the

basis of accounting. The nancial statements are prepared on the cash basis

of accounting, which is a basis of accounting other than accounting principles

generally accepted in the United States of America. Our opinion is not modied

with respect to this matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the -

nancial statements in accordance with the cash basis of accounting described

If management does not have a choice of nancial reporting frameworks, the auditor is not

required by paragraph .19b to make reference to management's responsibility for determining that

the applicable nancial reporting framework is acceptable in the circumstances.

The subtitle "Report on the Financial Statements" is unnecessary in circumstances when the

second subtitle "Report on Other Legal and Regulatory Requirements" is not applicable.

Another appropriate heading may be used.

Special Considerations — Audits of Financial Statements 1349

in Note X, and for determining that the cash basis of accounting is an accept-

able basis for the preparation of the nancial statements in the circumstances.

Management is also responsible for the design, implementation, and mainte-

nance of internal control relevant to the preparation and fair presentation of

nancial statements that are free from material misstatement, whether due to

fraud or error.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the nancial

statements as a whole are free from material misstatement, whether due to

fraud or error, and to issue an auditor's report that includes our opinion. Rea-

sonable assurance is a high level of assurance but is not absolute assurance and

therefore is not a guarantee that an audit conducted in accordance with GAAS

will always detect a material misstatement when it exists. The risk of not de-

tecting a material misstatement resulting from fraud is higher than for one

resulting from error, as fraud may involve collusion, forgery, intentional omis-

sions, misrepresentations, or the override of internal control. Misstatements

are considered material if there is a substantial likelihood that, individually or

in the aggregate, they would inuence the judgment made by a reasonable user

based on the nancial statements.

In performing an audit in accordance with GAAS, we:

•

Exercise professional judgment and maintain professional skep-

ticism throughout the audit.

•

Identify and assess the risks of material misstatement of the -

nancial statements, whether due to fraud or error, and design and

perform audit procedures responsive to those risks. Such proce-

dures include examining, on a test basis, evidence regarding the

amounts and disclosures in the nancial statements.

•

Obtain an understanding of internal control relevant to the audit

in order to design audit procedures that are appropriate in the cir-

cumstances, but not for the purpose of expressing an opinion on

the effectiveness of ABC Partnership's internal control. Accord-

ingly, no such opinion is expressed.

•

Evaluate the appropriateness of accounting policies used and the

reasonableness of signicant accounting estimates made by man-

agement, as well as evaluate the overall presentation of the nan-

cial statements.

•

Conclude whether, in our judgment, there are conditions or events,

considered in the aggregate, that raise substantial doubt about

ABC Partnership's ability to continue as a going concern for a rea-

sonable period of time.

We are required to communicate with those charged with governance regard-

ing, among other matters, the planned scope and timing of the audit, signicant

audit ndings, and certain internal control-related matters that we identied

during the audit.

In circumstances in which the auditor also has a responsibility to express an opinion on the

effectiveness of internal control in conjunction with the audit of the nancial statements, omit the

following: "but not for the purpose of expressing an opinion on the effectiveness of ABC Partnership's

internal control. Accordingly, no such opinion is expressed."

1350 Special Considerations

Report on Other Legal and Regulatory Requirements

[Form and content of this section of the auditor's report will vary depending on

the nature of the auditor's other reporting responsibilities.]

[Signature of the auditor's rm]

[City and state where the auditor's report is issued]

[Date of the auditor's report]

Special Considerations — Audits of Financial Statements 1351

Illustration 2 — An Auditor’s Report on a Complete Set of

Financial Statements Prepared in Accordance With the Tax Basis

of Accounting

Circumstances include the following:

•

The nancial statements have been prepared by management of

a partnership in accordance with the basis of accounting the part-

nership uses for income tax purposes (that is, a special purpose

framework).

•

Based on the partnership agreement, management does not have

a choice of nancial reporting frameworks.

Independent Auditor's Report

[Appropriate Addressee]

Report on the Audit of the Financial Statements

Opinion

We have audited the nancial statements of ABC Partnership, which comprise

the statements of assets, liabilities, and capital—income tax basis as of Decem-

ber 31, 20X1, and the related statements of revenue and expenses—income tax

basis and of changes in partners' capital accounts—income tax basis for the

year then ended, and the related notes to the nancial statements.

In our opinion, the accompanying nancial statements present fairly, in all ma-

terial respects, the assets, liabilities, and capital of ABC Partnership as of De-

cember 31, 20X1, and its revenue and expenses and changes in partners' capi-

tal accounts for the year then ended in accordance with the basis of accounting

ABC Partnership uses for income tax purposes described in Note X.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally ac-

cepted in the United States of America (GAAS). Our responsibilities under

those standards are further described in the Auditor's Responsibilities for the

Audit of the Financial Statements section of our report. We are required to be

independent of ABC Partnership, and to meet our other ethical responsibilities,

in accordance with the relevant ethical requirements relating to our audit. We

believe that the audit evidence we have obtained is sufcient and appropriate

to provide a basis for our audit opinion.

Emphasis of Matter — Basis of Accounting

We draw attention to Note X of the nancial statements, which describes the

basis of accounting. The nancial statements are prepared on the basis of ac-

counting ABC Partnership uses for income tax purposes, which is a basis of

accounting other than accounting principles generally accepted in the United

States of America. Our opinion is not modied with respect to this matter.

If management has a choice of nancial reporting frameworks, paragraph .18b requires that

the explanation of management's responsibility for the nancial statements also make reference to

its responsibility for determining that the applicable nancial reporting framework is acceptable in

the circumstances.

The subtitle "Report on the Financial Statements" is unnecessary in circumstances when the

second subtitle "Report on Other Legal and Regulatory Requirements" is not applicable.

Another appropriate heading may be used.

1352 Special Considerations

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the -

nancial statements in accordance with the basis of accounting ABC Partnership

uses for income tax purposes and for the design, implementation, and mainte-