complete set of financial statements.

The auditor shall not issue the auditor’s

report containing the opinion on the single financial statement or on the
specific element of a financial statement until satisfied with the
differentiation.

Modified Opinion, Emphasis of Matter Paragraph or Other Matter Paragraph

in the Auditor’s Report on the Entity’s Complete Set of Financial Statements.

If the opinion in the auditor’s report on an entity’s complete set of

financial statements is modified, or that report includes an Emphasis of
Matter paragraph or Other Matter paragraph, the auditor shall determine the
effect that this may have on the auditor’s report on a single financial
statement or on a specific element of those financial statements. When
deemed appropriate, the auditor shall modify the opinion on the single
financial statement or on the specific element of a financial statement, or
include an Emphasis of Matter paragraph or an Other Matter paragraph in
the auditor’s report, accordingly.

If the auditor concludes that it is necessary to express an adverse

opinion or disclaim an opinion on the entity’s complete set of financial
statements as a whole, PSA 705 (Revised and Redrafted) does not permit
the auditor to include in the same auditor’s report an unmodified opinion on
a single financial statement that forms part of those financial statements or
on a specific element that forms part of those financial statements. This is
because such an unmodified opinion would contradict the adverse opinion or
disclaimer of opinion on the entity’s complete set of financial statements as
a whole.

If the auditor concludes that it is necessary to express an adverse

opinion or disclaim an opinion on the entity’s complete set of financial
statements as a whole but, in the context of a separate audit of a specific
element that is included in those financial statements, the auditor
nevertheless considers it appropriate to express an unmodified opinion on
that element, the auditor shall only do so if:

a. The auditor is not prohibited by law or regulation from doing so;

b. That opinion is expressed in an auditor’s report that is not published
together with the auditor’s report that is not published together with
the auditor’s report containing the adverse opinion or disclaimer of
opinion; and
 c. The specific element does not constitute a major portion of the
entity’s complete set of financial statements.

The auditor shall not express an unmodified opinion on a single financial

statement of a complete of financial statements if the auditor has expressed
an adverse opinion or disclaimed an opinion on the complete set of financial
statements as a whole. This is the case even if the auditor’s report on the
single financial statement is not published together with the auditor’s report
containing the adverse opinion or disclaimer of opinion. This is because a
single financial statement is deemed to constitute a major portion of those
financial statements.

Exhibit 14-3 An auditor’s report on a single financial statement prepared in accordance

with a general purpose framework

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying balance sheet of ABC Company as at December 31, 2012
and a summary of significant accounting policies and other explanatory information (together
“the financial statement”).

Management’s Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of this financial statement in
accordance with those requirements of the Financial Reporting Framework in Jurisdiction X
relevant to preparing such a financial statement; this includes the design, implementation and
maintenance of internal control relevant to the preparation and fair presentation of the financial
statement that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial statement based on our audit. We
conducted our audit in accordance with Philippine Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statement. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the financial statement, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial statement in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates, if any, made by management, as well as evaluating the overall presentation of the
financial statement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.

Opinion

In our opinion, the financial statement presents fairly, in all material respects, the financial
position of ABC Company as at December 31, 2012 in accordance with those requirements of
the Financial Reporting Framework in Jurisdiction X relevant to preparing such a financial
statement.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

Exhibit 14-4 Auditor’s report on a statement of cash receipts and disbursements

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying statement of cash receipts and disbursements of ABC
Company for the year ended December 31, 2012 and a summary of significant accounting
policies and other explanatory information (together “the financial statement”). The financial
statement has been prepared by management using the cash receipts and disbursements basis of
accounting described in Note X.

Management’s Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of this financial statement in
accordance with the cash receipts and disbursements basis of accounting described in Note X;
this includes determining that the cash receipts and disbursements basis of accounting is an
acceptable basis for the preparation of the financial statement in the circumstances, and the
design, implementation and maintenance of internal control relevant to the preparation and fair
presentation of the financial statement that is free from material misstatement, whether due to
fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial statement based on our audit. We
conducted our audited in accordance with Philippine Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statement. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of the financial statement in
order to design audit procedure that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates, if any, made by management, as well as evaluating the overall presentation
of the financial statement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.

Opinion

In our opinion, the financial statement presents fairly, in all material respects, the cash receipts
and disbursements of ABC Company for the year ended December 31, 2012 in accordance with
the cash receipts and disbursements basis of accounting described in Note X.

Basis of Accounting

Without modifying our opinion, we draw attention to Note X to the financial statement, which
describes the basis of accounting. The financial statement is prepared to provide information to
XYZ Creditor. As a result, the statement may not be suitable for another purpose.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

Reports on Summary Financial Statements

Summary financial statements refer to historical financial information

that is derived from financial statements but that contains less detail than
the financial statements, while still providing a structured representation
consistent with that provided by the financial statements of the entity’s
economic resources or obligations at a point in time or the changes therein
for a period of time.

Throughout this section, the financial statements from which the

summary financial statements are derived shall be called audited financial
statements, while the criteria applied by management in the preparation of
the summary financial statements are called applied criteria.

Acceptance of the Engagement

The auditor shall accept an engagement to report on summary

financial statements only when the auditor has been engaged to conduct an
audit in accordance with PSAs of the financial statements from which the
summary financial statements are derived. Before accepting an engagement
to report on summary financial statements, the auditor shall:

a. Determine whether the applied criteria are acceptable;

b. Obtain the agreement of management that it acknowledges and
understands its responsibility:
 For the preparation of the summary financial statements in
accordance with the applied criteria;
 To make the audited financial statements available to the
intended users of the summary financial statements without
undue difficulty (or, if law or regulation provides that the audited
financial statements need not be made available to the intended
users of the summary financial statements and establishes the
criteria for the preparation of the summary financial statements,
to describe that law or regulation in the summary financial
statements); and
 To include the auditor’s report on the summary financial
statements in any document that contains the summary financial
statements and that indicates that the auditor has reported on
them.
c. Agree with management the form of opinion to be expressed on the
summary financial statements.

If the auditor concludes that the applied criteria are unacceptable or is

unable to obtain the agreement of management on acknowledgement of
responsibilities, the auditor shall not accept the engagement to report on the
summary financial statements, unless required by law or regulation to do so.
An engagement conducted in accordance with such law or regulation does
not comply with PSA 810. Accordingly, the auditor’s report on the summary
financial statements shall not indicate that the engagement was conducted
in accordance with PSA 810. The auditor shall include appropriate reference
to this fact in the terms of the engagement. The auditor shall also determine
the effect that this may have on the engagements to audit the financial
statements from which the summary financial statements are derived.

Planning Considerations

The auditor shall perform the following procedures, and any other
procedures that the auditor may consider necessary, as the basis for the
auditor’s opinion on the summary financial statements:

a. Evaluate whether the summary financial statements adequately

disclose their summarized nature and identify the audited financial
statements.
b. When summary financial statements are not accompanied by the
audited financial statements, evaluate whether they describe clearly:
 From whom or where the audited financial statements are
available; or
 The law or regulation that specifies that the audited financial
statements need not be made available to the intended users of
the summary financial statements and establishes the criteria for
the preparation of the summary financial statements.
c. Evaluate whether the summary financial statements adequately
disclose the applied criteria.
d. Compare the summary financial statements with the related
information in the audited financial statements to determine whether
the summary financial statements agree with or can be recalculated
from the related information in the audited financial statements.
e. Evaluate whether the summary financial statements are prepared in
accordance with the applied criteria.
f. Evaluate, in view of the purpose of the summary financial statements,
whether the summary financial statements contain the information
necessary, and are at an appropriate level of aggregation, so as not to
be misleading in the circumstances.
g. Evaluate whether the audited financial statements are available to the
intended users of the summary financial statements without undue
difficulty, unless law or regulation provides that they need not be
made available and establishes the criteria for the preparation of the
summary financial statements.

Reporting Considerations
 When the auditor has concluded that an unmodified opinion on the
summary financial statements is appropriate, the auditor’s opinion shall,
unless otherwise required by law or regulation, use one of the following
phrases:

a. The summary financial statements are consistent, in all material

respects, with the audited financial statements, in accordance with
[the applied criteria]; or
b. The summary financial statements are a fair summary of the audited
financial statements, in accordance with [the applied criteria].

If law or regulation prescribes the wording of the opinion on summary

financial statements in terms that are different from those described above,
the auditor shall:

a. Apply the procedure described in paragraph 8 and any further

procedures necessary to enable the auditor to express the prescribed
opinion; and
b. Evaluate whether users of the summary financial statements might
misunderstand the auditor’s opinion on the summary financial
statements and, if so, whether additional explanation in the auditor’s
report on the summary financial statements can mitigate possible
misunderstanding.

If, the auditor concludes that additional explanation in the auditor’s report
on the summary financial statements cannot mitigate possible
misunderstanding, the auditor shall not accept the engagement, unless
required by law or regulation to do so. An engagement conducted in
accordance with such law or regulation does not comply with PSA 810.
Accordingly, the auditor’s report on the summary financial statements shall
not indicate that the engagement was conducted in accordance with PSA
810.

Other Reporting Considerations

The auditor’s report on the summary financial statements may be

dated later than the date of the auditor’s report on the audited financial
statements. In such cases, the auditor’s report on the summary financial
statements shall state that the summary financial statements and audited
financial statements do not reflect the effects of events that occurred
subsequent to the date of the auditor’s report on the audited financial
statements that may require adjustments of, or disclosure in, the audited
financial statements.

The auditor may become aware of facts that existed at the date of the
auditor’s report on the audited financial statements, but of which the auditor
previously was unaware. In such cases, the auditor shall not issue the
auditor’s report on the summary financial statements until the auditor’s
consideration of such facts in relation to the audited financial statements in
accordance with PSA 560 (Redrafted) has been completed.

Table 14-1
Basic Elements of a Report on Summary Financial Statements

1. Title clearly indicating that it is the report of an independent auditor;

2. Addressee;
3. An identification of the summary financial statements on which the auditor is reporting,
including the title of each statement included in the summary financial statements;
4. An identification of the audited financial statements from which the summarized
financial statements were derived;
5. A reference to the date of the audit report on the audited financial statements and the type
of opinion given in that report;
6. If the date of the auditor’s report on the summary financial statements is later than the
date of the auditor’s report on the audited financial statements, states that the summary
financial statements and the audited financial statements do not reflect the effects of
events that occurred subsequent to the date of the auditor’s report on the audited financial
statements;
7. A statement indicating that the summary financial statements do not contain all the
disclosures required by the financial reporting framework applied in the preparation of
the audited financial statements, and that reading the summary financial statements is not
a substitute for reading the audited financial statements.
8. A description of management’s responsibility for the summary financial statements,
explaining that management is responsible for the preparation of the summary financial
statements in accordance with the applied criteria.
9. A statement that the auditor is responsible for expressing an opinion on the summary
financial statements based on the procedures required by PSA 810.
10. A paragraph clearly expressing an opinion.
11. The auditor’s signature.
12. The date of the auditor’s report.
13. The auditor’s address.
 If the addressee of the summary financial statements is not the same
as the addressee of the auditor’s report on the audited financial statements,
the auditor shall evaluate the appropriateness of using a different addressee.

The auditor shall date the auditor’s report on the summary financial
statements no earlier than:

a. The date on which the auditor has obtained sufficient appropriate

evidence on which to base the opinion, including evidence that the
summary financial statements have been prepared and those with the
recognized authority have asserted that they have taken responsibility
for them; and
b. The date of the auditor’s report on the audited financial statements.

Modifications to the Opinion, Emphasis of Matter Paragraph or Other

Matter Paragraph in the Auditor’s Report on the Audited Financial
Statements

When the auditor’s report on the audited financial statements contains

a qualified opinion, an Emphasis of Matter paragraph, or an Other Matter
paragraph, but the auditor is satisfied that the summary financial statements
are consistent, in all material respects, with or are a fair summary of the
audited financial statements, in accordance with the applied criteria, the
auditor’s report on the summary financial statements shall, in addition to the
elements in Table 14-1:

a. State that the auditor’s report on the audited financial statements

contains a qualified opinion, an Emphasis of Matter paragraph, or an
Other Matter paragraph; and
b. Describe:
 The basis for the qualified opinion on the audited financial
statements, and that qualified opinion; or the Emphasis of
Matter or the Other Matter paragraph in the auditor’s report on
the audited financial statements; and
 The effect thereof on the summary financial statements, if any.

When the auditor’s report on the audited financial statements contains

an adverse opinion or a disclaimer of opinion, the auditor’s report on the
summary financial statements shall, in accordance to the elements in Table
14-1:
 a. State that the auditor’s report on the audited financial statements
contains an adverse opinion or disclaimer of opinion;
b. Describe the basis for that adverse opinion or disclaimer of opinion;
and
c. State that, as a result of the adverse opinion or disclaimer of opinion,
it is inappropriate to express an opinion on the summary financial
statements.

Modified Opinion on the Summary Financial Statements

If the summary financial statements are not consistent, in all material

respects, with or are not a fair summary of the audited financial statements,
in accordance with the applied criteria, and management does not agree to
make the necessary changes, the auditor shall express an adverse opinion
on the summary financial statements.

Restriction on Distribution or Use or Alerting Readers to the Basis of

Accounting

When distribution or use of the auditor’s report on the audited financial

statements is restricted, or the auditor’s report on the audited financial
statements alerts readers that the audited financial statements are prepared
in accordance with a special purpose framework, the auditor shall include a
similar restriction or alert in the auditor’s report on the summary financial
statements.

Comparatives

If the audited financial statements contain comparatives, but the

summary financial statements do not, the auditor shall determine whether
such omission is reasonable in the circumstances of the engagement. The
auditor shall determine the effect of an unreasonable omission on the
auditor’s report on the summary financial statements.

If the summary financial statements contain comparatives that were

reported on by another auditor, the auditor’s report on the summary
financial statements shall also contain the matters that PSA 710 (Redrafted)
requires the auditor to include in the auditor’s report on the audited financial
statements.
Unaudited Supplementary Information Presented with Summary
Financial Statements

The auditor shall evaluate whether any unaudited supplementary

information presented with the summary financial statements is clearly
differentiated from the summary financial statements. If the auditor
concludes that the entity’s presentation of the unaudited supplementary
information is not clearly differentiated from the summary financial
statements, the auditor shall ask management to change the presentation of
the unaudited supplementary information. If management refuses to do so,
the auditor shall explain in the auditor’s report on the summary financial
statements that such information is not covered by that report.

Other Information in Documents Containing Summary Financial

Statements

The auditor shall read other information included in a document

containing the summary financial statements and related auditor’s report to
identify material inconsistencies, if any, with the summary financial
statements. If, on reading the other information, the auditor identifies a
material inconsistency, the auditor shall determine whether the summary
financial statements or the other information needs to be revised. If, on
reading the other information, the auditor becomes aware of an apparent
material misstatement of fact, the auditor shall discuss the matter with
management.

Auditor Association

If the auditor becomes aware that the entity plans to state that the
auditor has reported on summary financial statements in a document
containing the summary financial statements, but does not plan to include
the related auditor’s report, the auditor shall request management to include
the auditor’s report in the document.

If management does not do so, the auditor shall determine and carry
out other appropriate actions designed to prevent management from
inappropriately associating the auditor with the summary financial
statements in that document.

The auditor may be engaged to report on the financial statements of

an entity, while not engaged to report on the summary financial statements.
If, in this case, the auditor becomes aware that the entity plans to make a
statement in a document that refers to the auditor and the fact that
summary financial statements are derived from the financial statements
audited by the auditor, the auditor shall be satisfied that:

a. The reference to the auditor is made in the context of the auditor’s

report on the audited financial statements; and
b. The statement does not give the impression that the auditor has
reported on the summary financial statements

If (a) or (b) are not met, the auditor shall request management to
changer the statement to meet them, or not to refer to the auditor in the
document.

Alternatively, the entity may engage the auditor to report on the

summary financial statements and include the related auditor’s report in the
document. If management does not change the statement, delete the
reference to the auditor, or include an auditor’s report on the summary
financial statements in the document containing the summary financial
statements, the auditor shall advise management that the auditor disagrees
with the reference to the auditor, and the auditor shall determine and carry
out other appropriate actions designed to prevent management from
inappropriately referring to the auditor.

Exhibit 14-5 Standard Report on Summary Financial Statements

REPORT OF THE INDEPENDENT AUDITOR ON TH SUMMARY FINANCIAL

STATEMENTS

[Appropriate Addressee]

The accompanying summary financial statements, which comprise the summary balance sheet as
at December 31, 2012, the summary income statement, summary statement of changes in equity
and summary cash flow statement for the year then ended, and related notes, are derived from the
audited financial statements of ABC Company for the year ended December 31, 2012. We
expressed an unmodified audit opinion on those financial statements in our report dated February
15, 2012. Those financial statements, and the summary financial statements, do not reflect the
effects of events that occurred subsequent to the date of our report on those financial statements.

The summary financial statements do not contain all the disclosures required by [describe
financial reporting framework applied in the preparation of the audited financial statements of
ABC Company]. Reading the summary financial statements, therefore, is not a substitute for
reading the audited financial statements of ABC Company.

Management’s Responsibility for the Summary Financial Statements

Management is responsible for the preparation of a summary of the audited financial statements
in accordance with [describe established criteria].

Auditor’s Responsibility

Our responsibility is to express an opinion on the summary financial statements based on our
procedures, which were conducted in accordance with Philippine Standard on Auditing (PSA)
810 (Revised and Redrafted), “Engagements to Report on Summary Financial Statements.”

Opinion

In our opinion, the summary financial statements derived from the audited financial statements
of ABC Company for the year ended December 31, 20X1 are consistent, in all material respects,
with those financial statements, in accordance with [describe established criteria].

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

Summary of Learning Objectives

1. Identify the different engagements where auditors issue

special purpose audit reports. Auditors issue special purpose audit
reports when performing the following engagements: audits of
financial statements prepared under special purpose framework;
reporting on single financial statements or elements of financial
statements; and reporting on summary financial statements.
2. Understand the requirements of PSAs in issuing special reports.
PSAs requires proper planning of special purpose engagements, the
gathering of sufficient, appropriate audit evidence, and the issuance of
the appropriate report. PSA 800, 805 and 810 further require the
auditor to conform with the reporting format prescribed in the
Standard.
3. Describe the contents of special-purpose audit reports. Special
reports contain the following elements:
a. Title;
b. Addressee;
c. Opening or introductory paragraph
 d. A scope paragraph (describing the nature of an audit)
e. Opinion paragraph containing an expression of opinion on the
financial information;
f. Date of the report;
g. Auditor’s address; and
h. Auditor’s signature.

Important Terms and Concepts

Applied criteria Report on compliance

Audit of components Report on summarized financial
Audited financial statements statements
Component Special-purpose audit engagements
Compliance Special-purpose frameworks
Comprehensive basis of accounting Single financial statements
Element of financial statements Summary financial statements

Acknowledgements and References

Auditing Standards and Other Auditing Literature

Auditing and Assurance Standards Council (AASC), PSA 200: General Principles
Governing an Audit of Financial Statements

AASC, PSA 800 (Revised and Redrafted): Special Considerations – Audits of

Financial Statements Prepared in Accordance with Special-purpose
Frameworks

AASC, PSA 805 (Revised and Redrafted): Special Considerations – Audits of Single
Financial Statements and Specific Elements, Accounts or Items of a Financial
Statement

AASC, PSA 810 (Revised and Redrafted): Engagements to Report on Summary

Financial Statements

International Auditing and Assurance Standards Board, 2010 IAASB Handbook.

Books
Arens, Alvin A. and James K. Loebbecke. Auditing – An Integrated Approach,
6e
Cabrera, Elenita B. Principles of Auditing, 2001.
Riocchiute, David N. Auditing and Assurance Services 7e, 2003
Taylor, Donald H. and G. William Glezen, Auditing: An Assertions Approach,
7e, 1997
Whittington, O. Ray and Kurt Pany, Principles of Auditing 11e

Discussion Questions

1. Give examples of special considerations regarding audit engagements.

2. What are examples of other comprehensive bases of accounting?
3. Explain the nature of an engagement to report on components of the
financial statements.
4. Why is it that reporting on a component results in a more extensive
examination of an account compared to a report on the whole set of
financial statements?
5. What are the auditor’s considerations when reporting on compliance
with contractual agreements?
6. Define summarized financial statements.
7. What are the restrictions to the auditor when reporting on summary
financial statements?

Objective Questions

E14-1 True or False.

____ 1. A CPA has been engaged to audit financial statements that were
prepared on a cash basis. The CPA must ascertain that there is
proper disclosure of the fact that the cash basis has been used,
the general nature of material items omitted, and the net effect
of such omissions.
____ 2. When requested to report in a prescribed format which differs
from the requirements of PSA 800, the prescribed format shall
prevail over the requirements of PSA 800.
____ 3. A comprehensive basis of accounting comprises a set of criteria
used in preparing financial statements which applies to selected
material items and which has substantial support.
____ 4. The special report on modified cash basis financial statements
need not include a statement that indicates the basis of
accounting used.
____ 5. Audit of components results in a report on the financial
statements taken as a whole.
 ____ 6. In an audit of components, the auditor’s examination will
ordinarily be less extensive than if the same component were to
be audited in connection with a report on the entire financial
statements.
____ 7. When an adverse opinion or disclaimer of opinion on the entire
financial statements has been expressed, the auditor should
report on components of the financial statements only if those
components are so extensive as to constitute a major portion of
the financial statements.
____ 8. One of the major concerns in determining whether to accept an
audit of compliance is the professional competence of the
auditor.
____ 9. Unless the auditor has expressed an audit opinion on the
financial statements from which the summarized financial
statements were derived, the auditor should not report on
summarized financial statements.
____ 10. Wordings such as “present fairly, in all material respects” is not
used by the auditor when expressing an opinion on summarized
financial statements.

E14-2 Multiple Choice.

1. This PSA covers special considerations in audit engagements, except:

A. PSA 850
B. PSA 800
C. PSA 805
D. PSA 810

2. The objective of the auditor, when applying PSAs in an audit of

financial statements prepared in accordance with a special purpose
framework, is to address appropriately the special considerations that
are relevant to:
A. The acceptance of the engagement
B. The planning and performance of that engagement
C. Forming an opinion and reporting on the financial statements
D. All of the answers

3. These are financial statements prepared in accordance with a special

purpose framework.
 A. Modified financial statements
B. Particular-use financial statements
C. Special-purpose financial statements
D. Specialized reporting statements

4. A financial reporting framework designed to meet the financial

information needs of specific users.
A. Philippine Standards on Special Reports
B. Special purpose framework
C. Particular purpose framework
D. Customized financial reporting standards

5. Examples of special-purpose frameworks are:

I. A tax basis of accounting for a set of FS that accompany an
entity’s tax return
II. The cash receipts and disbursements basis of accounting for cash
flow information that an entity may be requested to prepare for
creditors
III. The financial reporting provisions established by a regular to
meet the requirements of that regulator
IV. The financial reporting provisions of a contract, such as a bond
indenture, a loan agreement, or a project grant
A. I, II and III C. II, III and IV
B. I, II and IV D. I, II, III and IV

6. The auditor should determine the acceptability of the financial

reporting framework applied in the preparation of FS. In an audit of
special-purpose Fs, the auditor shall obtain an understanding of:
A. The purpose for which the financial statements are prepared
B. The intended users
C. The steps taken by management to determine that the
applicable financial reporting framework is acceptable in the
circumstances
D. All of these

7. In determining the acceptability of the special-purpose financial

reporting framework applied, the key factor is:
 A. Cost-benefit considerations in applying the framework.
B. Global acceptance of the special-purpose framework.
C. Ease in auditing the FS produced under the special-purpose
framework.
D. The financial information needs of the intended users

8. The following are the considerations when planning and performing an

audit of special-purpose FS. Select the incorrect statement:
A. In planning and performing an audit of special purpose FS, the
auditor shall determine whether application of the PSAs requires
special consideration in the circumstances of the engagement.
B. In the case of FS prepared in accordance with the provisions of a
contract, the auditor shall obtain an understanding of any
significant interpretations of the contract that management
made in the preparation of those FS.
C. An interpretation is insignificant when adoption of another
reasonable interpretation would have produced a material
difference in the information presented in the FS.
D. All of these statements are incorrect.

9. S1 When forming an opinion and reporting on special purpose FS, the

auditor shall apply the requirements in PSA 700 (Redrafted).
S2 In the case of FS prepared in accordance with the provisions of a
contract, the auditor shall evaluate whether the FS adequately
describe any significant interpretations of the contract on which the FS
are based.
A. True, true C. False, true
B. True, false D. False, false
10. PSA 700 (Redrafted) deals with the form and content of the auditor’s
report. In the case of an auditor’s report on special-purpose FS, which
of the following are additional reporting requirements mentioned by
PSA 800?
I. The auditor’s report shall also describe the purpose for which the
FS are prepared and, if necessary, the intended users, or refer to
a note in the special purpose FS that contains that information.
II. If management has a choice of financial reporting frameworks in
the preparation of such FS, the explanation of management’s
responsibility for the FS shall also make reference to its
 responsibility for determining that the applicable financial
reporting framework is acceptable in the circumstances.
III. The auditor’s report on special purpose FS shall include an
Emphasis of Matter paragraph alerting users of the auditor’s
report that the FS are prepared in accordance with a special
purpose framework and that, as a result, the financial
statements may not be suitable for another purpose.
A. I and II only C. I and III only
B. II and III only D. I, II and III

11. PSA 800 (Redrafted) requires that the auditor’s report should include
an alert on the special-purpose for which the FS have been prepared.
In addition to this alert, the auditors may consider it appropriate to
indicate that the auditor’s report is intended solely for the specific
users. Depending on the law or regulation of the particular jurisdiction,
how is this normally achieved?
A. By restricting the distribution or use of the auditor’s report.
B. By issuing a qualified opinion or adverse opinion on the financial
statements.
C. By requiring the entity to add a paragraph in the notes to the
financial statements to indicate the restriction.
D. By modifying the title of the auditor’s report, such as “Restricted
Report of Independent Auditor”

12. A paragraph in the auditor’s report, placed after the opinion

paragraph, reads as follows:

Without modifying our opinion, we draw attention to Note X to the

financial statements, which describe the basis of accounting. The
financial statements are prepared to assist ABC Company to comply
with the financial reporting provisions of the contract referred to
above. As a result, the financial statements may not be suitable for
another purpose. Our report is intended solely for ABC Company and
DEF Company and should not be distributed to or used by parties
other than ABC Company or DEF Company.

This paragraph:
A. Refers to the basis of accounting by mention of a note to the FS
 B. Describes the purpose of the special-purpose FS
C. Restricts the distribution or use of the report
D. All of the answers

13. If the special-purpose FS is not suitably titled or the basis of

accounting is not adequately disclosed, the auditor should:
A. Withdraw from the engagement.
B. Issue an appropriately modified report.
C. Reword the title of the financial statements.
D. Request for an additional representation in the management
representation letter.

14. This refers to an element, account, or item of a financial statement.

A. Element of financial statements
B. Component
C. Part of financial statements
D. Financial statement category

15. Which of the following are specific, elements, accounts, or items of a

financial statement?
(1) Accounts receivable, allowance for doubtful accounts receivable,
inventory, the liability for accrued benefits of a private pension
plan, the recorded value of identified intangible assets, or the
liability for “incurred but not reported” claims in an insurance
portfolio, including related notes
(2) A schedule of externally managed assets and income of a private
pension plan, including related notes.
(3) A schedule of net tangible assets, including related notes.
(4) A schedule of disbursements in relation to a lease property,
including explanatory notes.
(5) A schedule of profit participation or employee bonuses, including
explanatory notes.
A. (1), (2), (3) C. (1), (3), (4), (5)
B. (1), (3), (4) D. (1), (2), (3), (4), (5)

16. The following statements relate to PSA 805. Select the incorrect
statement:
 A. An auditor may be engaged to audit the entity’s complete set of
FS, as well as the audit of a single financial statement or of a
specific element of the FS.
B. If the auditor is not also engaged to audit the entity’s complete
set of FS, the auditor shall determine whether the audit of a
single FS or of a specific element of those FS in accordance with
PSAs is practicable.
C. In the case of an audit of a single FS or of a specific element of
FS, the auditor shall consider whether application of the financial
reporting framework will result in a presentation that provides
adequate disclosures to enable the intended users to understand
the information conveyed in the FS or the element, and the
effect of material transactions and events on the information
conveyed in the FS or the element.
D. All of these are correct statements

17. S1 When auditing a single FS or an element of FS, it is not necessary

to examine evidence pertaining accounts that are related to the single
FS or element of FS being audited.
S2 The materiality determined for a single FS or an element of FS may
be lower than the materiality determined for the entity’s complete set
of FS.
A. True, true C. False, true
B. True, false D. False, false

18. If the auditor undertakes an engagement to report on a single FS or

on a specific element of FS in conjunction with an engagement to audit
the entity’s complete set of FS, the auditor shall express:
A. An opinion on the single FS or on the specific element of the FS
only.
B. An opinion on the complete set of FS only.
C. A single opinion covering both the single FS or specific element
of FS and the completed set of FS.
D. A separate opinion for each engagement.

19. When audited single FS or audited specific element of FS are

presented together with the audited complete set of FS, the following
must be differentiated:
 A. The single FS or specific element of FS must be differentiated
from the complete set of FS
B. The opinion for the single FS or specific element of FS must be
differentiated from the opinion on the complete set of FS
C. Both A and B
D. Neither A nor B

20. Jude, CPA, was asked by Isaac Company to audit the company’s Loans
and Receivables account, in conjunction with the audit of Isaac’s
complete FS. Jude issued a report with unqualified opinion and with
emphasis of a matter paragraph on the complete set of FS of Isaac
Company. Accordingly, Jude shall:
A. Issue a qualified opinion on the Loans and Receivables account.
B. Issue a disclaimer of opinion on the Loans and Receivables
account.
C. Consider the effect of the emphasis of a matter on the auditor’s
report for Loans and Receivables
D. Issue also an unqualified opinion with emphasis of a matter
paragraph for Loans and Receivables.

21. Jude, CPA, was asked by Isaac Company to audit the company’s Loans
and Receivables account, in conjunction with the audit of Isaac’s
complete FS. Jude issued a report with modified opinion on the
complete set of FS of Isaac Company. Accordingly, Jude shall:
A. Issue a qualified opinion on the Loans and Receivables account.
B. Issue a disclaimer of opinion on the Loans and Receivables
account.
C. Consider the effect of the emphasis of a matter on the auditor’s
report for Loans and Receivables
D. Issue also an unqualified opinion with emphasis of a matter
paragraph for Loans and Receivables.

22. If the auditor concludes that it is necessary to express an adverse

opinion or disclaim an opinion on the entity’s complete set of FS as a
whole but, in the context of a separate audit of a specific element that
is included in those FS, the auditor nevertheless considers it
appropriate to express an unmodified opinion on that element, the
auditor shall only do so if:
 A. The auditor is not prohibited by law or regulation from doing so
B. That opinion is expressed in an auditor’s report that is not
published together with the auditor’s report containing the
adverse opinion or disclaimer of opinion
C. The specific element does not constitute a major portion of the
entity’s complete set of FS
D. All of these

23. S1 The auditor shall not express an unmodified opinion on a single FS

of a complete set of FS if the auditor has expressed an adverse opinion
or disclaimed an opinion on the complete set of FS as a whole.
S2 Expressing an unmodified opinion on a single FS which came from
a complete set of FS that was given adverse opinion or disclaimer of
opinion, is allowed only if such unmodified opinion is published
separately from the auditor’s report containing the adverse opinion or
disclaimer of opinion.
S3 A single FS is always deemed to constitute a major portion of a
complete set of FS.
A. True, true, false C. True, false, false
B. True, false, true D. False, false, true

24. The criteria applied by management in the preparation of the summary

FS is known as:
A. Applied criteria
B. Summary criteria
C. Financial reporting framework
D. Summary reporting standards

25. These are FS audited by the auditor in accordance with PSAs, and from
which the summary FS are derived:
A. Source financial statements
B. Audited financial statements
C. Original financial statements
D. Uncut financial statements

26. Historical financial information that is derived from FS but that

contains less detail than the FS, while still providing a structured
representation consistent with that provided by the FS of the entity’s
 economic resources or obligations at a point in time or the changes
therein for a period of time, are known as:
A. Simplified financial statements
B. Compressed financial statements
C. Summary financial statements
D. Abridged financial statements

27. Dorothy, CPA, is requested to report on summary FS of Lock Books,

Inc. Dorothy has not expressed an audit opinion on the FS from which
the summary FS were derived. Based solely on this information,
should Dorothy accept the engagement?
A. Yes, because a report on summary FS is a separate engagement
B. No, because PSA 810 (Redrafted) mandates that the auditor
should only accept an engagement to report on summary FS
only when the auditor has been engaged to conduct an audit of
the FS from which the summary FS are derived.
C. Yes, because an audit of summary FS is comparable to the audit
of FS from which such summary FS are derived.
D. None of the above choices can be selected because of lack of
information.

28. Before accepting an engagement to audit summary FS, the auditor

shall:
A. Determine whether the applied criteria are acceptable.
B. Obtain the agreement of management that it acknowledges and
understands its responsibilities regarding the summary FS.
C. Agree with management the form of opinion to be expressed on
the summary FS.
D. All of the choices.

29. In the context of PSA 810 (Redrafted), management should agree with
the auditor and acknowledgement its responsibilities:
A. For the preparation of the summary FS in accordance with the
applied criteria
B. To make the audited FS available to the intended users of the
summary FS without undue difficulty
 C. To include the auditor’s report on the summary FS in any
document that contains the summary FS and that indicates that
the auditor has reported on them
D. All of the choices.

30. Which of the following procedures are least likely to be performed in

relation to an engagement to report on summary FS?
A. Evaluate whether the summary FS adequately disclose their
summarized nature and identify the audited FS
B. When summary FS are not accompanied by the audited FS,
evaluate whether they describe clearly from whom or where the
audited FS are available
C. Evaluate whether the summary financial statements adequately
disclose the applied criteria
D. Compare the summary FS with the related information in the
audited FS to determine whether the audited FS agree with, or
can be recalculated from, the related information in the
summary FS.

31. Which of the following procedures are most likely to be performed in

relation to an engagement to report on summary FS?
A. Evaluate whether the summary FS are prepared in accordance
with the applied criteria.
B. Evaluate, in view of the purpose of the summary FS, whether the
summary FS contain the information necessary, and are at an
appropriate level of aggregation, so as not to be misleading in
the circumstances
C. Evaluate whether the audited FS are available to the intended
users of the summary FS without undue difficulty, unless law or
regulation provides that they need not be made available and
establishes the criteria for the preparation of the summary FS.
D. All of the choices.

32. Which of the following phrases are acceptable forms of unmodified

opinion on summary FS?
I. The summary FS are consistent, in all material respects, with the
audited FS, in accordance with [the applied criteria]
 II. The summary FS are a fair summary of the audited FS, in
accordance with [the applied criteria]
A. I only C. Both I and II
B. II only D. Neither I nor II

33. If law or regulation prescribes the wording of the opinion on summary

FS in terms that are different from those described in PSA 810
(Redrafted), the auditor shall:
A. Apply the procedures necessary to enable the auditor to express
the prescribed opinion; and
B. Evaluate whether users of the summary FS might misunderstand
the auditor’s opinion on the summary FS and, if so, whether
additional explanation in the auditor’s report on the summary FS
can mitigate possible misunderstanding.
C. Both A and B
D. Neither A nor B

34. S1 The auditor’s report on summary FS may be dated later than the
date of the auditor’s report on audited FS.
S2 In case previously unidentified subsequent events occurred
between the date of the auditor’s report on audited FS and the date of
the auditor’s report on the summary FS, the report on the summary FS
shall not be issued until the auditor’s consideration of such subsequent
events has been completed.
A. True, true C. False, true
B. True, false D. False, false

35. The introductory paragraph of an auditor’s report on summary FS

shall:
A. Identify the summary FS on which the auditor is reporting,
including the title of each statement included in the summary
FS.
B. Identify the audited FS
C. Refers to the auditor’s report on the audited FS, the date of that
report, and the fact that an unmodified opinion is expressed on
the audited FS
D. All of the choices
36. S1 If the date of the auditor’s report on the summary FS is later than
the date of the auditor’s report on the audited FS, the auditor’s report
should state that the summary FS and the audited FS do not reflect
the effects of events that occurred subsequent to the date of the
auditor’s report on the audited FS.
S2 Summary FS do not contain all the disclosures required by the
financial reporting framework applied in the preparation of the audited
FS.
S3 If done correctly, reading the summary FS is a substitute for
reading the audited FS.
A. True, true, false C. False, true, false
B. False, true, true D. True, true, true

37. If the addressee of the summary FS is not the same as the addressee
of the auditor’s report on the audited FS, the auditor shall:
A. Withdraw from the engagement and issue a letter to
management detailing the reasons thereto.
B. Issue a disclaimer of opinion.
C. Mention the difference in an other matter paragraph after the
opinion and emphasis of a matter paragraphs.
D. Evaluate the appropriateness of using a different addressee.

38. The auditor shall date the auditor’s report on the summary financial
statements no earlier than:
I. The date on which the auditor has obtained sufficient appropriate
evidence on which to base the opinion, including evidence that
the summary FS have been prepared and those with the
recognized authority have asserted that they have taken
responsibility for them.
II. The date of the auditor’s report on the audited FS.
A. I only C. Both I and II
B. II only D. Neither I nor II

39. When the auditor’s report on the audited FS contains a qualified

opinion, an Emphasis of Matter paragraph, or an Other Matter
paragraph, but the auditor is satisfied that the summary FS are
consistent, in all material respects, with or are a fair summary of the
 audited FS, in accordance with the applied criteria, the auditor’s report
on the summary FS shall:
A. State that the auditor’s report on the audited FS contains a
qualified opinion, an Emphasis of Matter paragraph, or an Other
Matter paragraph
B. Describe the basis for the qualified opinion on the audited FS,
and that qualified opinion; or the Emphasis of Matter or the
Other Matter paragraph in the auditor’s report on the audited FS
C. Describe the effect thereof on the summary FS, if any, of the
reasons for qualified opinion, or emphasis of a matter, or other
matter paragraph in the auditor’s report on the audited FS.
D. All of the answers.

40. When the auditor’s report on the audited FS contains an adverse

opinion or a disclaimer of opinion, the auditor’s report on the summary
FS shall:
A. State that the auditor’s report on the audited FS contains an
adverse opinion or disclaimer of opinion
B. Describe the basis for that adverse opinion or disclaimer of
opinion
C. State that, as a result of the adverse opinion or disclaimer of
opinion, it is inappropriate to express an opinion on the
summary FS
D. All of the answers

41. If the summary FS are not considered, in all material respects, with or
are not a fair summary of the audited FS, in accordance with the
applied criteria, and management does not agree to make the
necessary changes, the auditor shall:
A. Express an unqualified opinion on the summary FS, with an
emphasis of a matter paragraph describing the lack of
consistency.
B. Express a qualified opinion on the summary FS, with a basis for
modification paragraph describing the lack of consistency.
C. Express an adverse opinion on the summary FS.
D. Withdraw from the engagement since management refuses to
make amendments to the summary FS.
 Discussion Case

Case 1 – Comprehensive Case on Special-Purpose Audits

Raymond & Co., CPAs, has just completed the audit of the financial
statements of Trillo Corporation for the year ended December 31, 2010. The
financial statements are prepared under the income tax (cash) basis,
including notes that indicate that Trillo is involved in continuing litigation.
The case involves material amounts and is related to alleged infringement of
the patent of Honeybee, a competitor of Trillo. The amount of damages, if
any, resulting from this litigation could not be determined as of the time of
completion of the engagement. The 2009 financial statements were not
presented. Assume that the financial statements of Trillo Corporation are
suitably titled.

Requirement: Based solely on the information presented, draft Raymond’s

special audit report for this engagement, following the requirements of PSA
800. Include any appropriate explanatory disclosures.