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Comments from ACCA
November 2007

Executive Summary

ACCA welcomes the opportunity to comment on the proposed International Standard on Auditing ISA 800 (Revised and Redrafted) Special Considerations – Audits of Special Purpose Financial Statements and Specific Elements, Accounts or Items of a Financial Statement (proposed ISA 800), issued for comment by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants.

Primarily because much of the material relevant to audits of special purpose financial statements is proposed to be in other ISAs, we suggest restricting the scope of proposed ISA 800 to specific elements, accounts or items of a financial statement.

Our other comments are restricted to the changes proposed as a result of applying the Clarity project drafting conventions to the close off document of ISA 800 (Revised) that reflects IAASB decisions made after an earlier consultation.

Although we raise concerns about the elevation of some guidance material to the Requirements section, we are generally in agreement with proposed ISA 800 as it would apply to the audit of specific elements, accounts or items of a financial statement.

Application of the Clarity Drafting Conventions

Scope

The Explanatory Memorandum issued as part of the Exposure Draft of proposed ISA 800 states that comments are sought only on changes resulting from applying the Clarity drafting conventions to the close off document of ISA 800 (Revised). We have restricted our comments accordingly.

The close off document includes a version of the proposed ISA, but some two thirds of the document is given over to conforming amendments to other ISAs. Consequently, we have not hesitated to challenge the positioning of material where we believe that it could be improved.

Special purpose financial statements

We note that the Basis for Conclusions document issued by the IAASB in connection with proposed ISA 800 reports that (paragraph 14): ‘The IAASB was of the view that a split between auditors' reports on general purpose financial statements and auditors' reports on special purpose financial statements would provide a clear indication as to where to look for requirements and guidance relevant to auditors' reports.'

As a consequence: ‘ISA 700 should deal with auditors' reports on general purpose financial statements and ISA 800 (Revised) with auditors' reports on special purpose financial statements;'.

Given the extensive conforming amendments laid out in the close off document, it is clear that auditors of special purpose financial statements have to be particularly aware of related aspects of: ISA 200 Objective and General Principles Governing an Audit of Financial Statements , ISA 210 Terms of Audit Engagements , ISA 700 (Revised) The Independent Auditor's Report on General Purpose Financial Statements , and ISA 706 (Revised) Emphasis of Matter Paragraphs and Other Matter(s) Paragraphs in the Independent Auditor's R eport .

We are not convinced, therefore, that proposed ISA 800 achieves the aim of providing a clear indication as to where to look. Instead, we suggest that it is appropriate to incorporate guidance for special purpose financial statements into the other ISAs in the way that is done, for example in respect of Special Considerations in the Audit of Small Entities .

The specific changes to paragraphs 9 to 14 that we suggest are set out under the heading Requirements below. There would also be a need to make corresponding changes to the Application and Other Explanatory Material and other aspects of the ISA, such as the Objective.

Specific elements, accounts or items of a financial statement

The above changes would allow proposed ISA 800 to concentrate on specific elements, accounts or items of a financial statement, with an attendant increase in the focus and clarity of exposition for such audits.

Objective

If the changes recommended above are not effected, the Objective is acceptable.

Requirements

The recommendations below in respect of paragraphs 9 to 14 are made to give effect to the recommendation on the Scope of proposed ISA 800 set out earlier in this response.

Paragraph 9 & Paragraph 10

These would be transferred to ISA 210 Terms of Audit Engagements .

Paragraph 11

This would be unnecessary as it duplicates ISA 200 Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with International Standards on Auditing .

Paragraph 12

This cross reference to ISA 700 would be unnecessary as this section of proposed ISA 800 is eliminated. Users would refer to the primary reference.

Paragraph 13

This would be transferred to ISA 700.

Paragraph 14

This would be transferred to ISA 700.

Paragraph 16 (and paragraph 15)

We do not believe that this material should be a requirement. There is considerable danger in elevating to a requirement material that should be just explanatory. Examined closely, the consequences of the requirement are not justifiable in the context of the engagements to which it would be relevant.

It is worth noting that while the discussion below relates to audits where the auditor is not also engaged to audit the entity's financial statements; the nature of the specific elements, accounts or items of a financial statement may also make an audit in accordance with ISAs is not practicable in other circumstances (for example because the materiality in relation to the full financial statements may be so great in relation to an element).

Paragraph 16 (with related A18) requires the auditor to determine the practicability of an audit of an element in circumstances where the auditor does not also audit the financial statements. While the possession of ‘audit-level knowledge' and indeed the possibility that ISAs are complied with in relation to the ‘full' audit are important, the auditor who is not in possession of either, may not have sufficient information to make a determination as to whether the audit of an element is practicable.

It is clear that, given sufficient time, and in the absence of any imposed scope limitation, the auditor could acquire audit-level knowledge and carry out procedures in compliance with ISAs. For full financial statements, the application of ISAs is not considered to be constrained by the cost of application nor the amount of the fee receivable for the engagement. In order to comply with paragraph 16 of proposed ISA 800, the auditor would have to be allowed sufficient resources to properly determine whether the audit was practicable. This may itself result in additional costs of the engagement such that the auditor would prefer not to enter into any engagement in respect of specific elements, accounts or items of a financial statement under ISAs, unless also undertaking the audit of the full financial statements.

In practice, where not constrained by law or regulation, the decision as to what engagement is appropriate and what standards are to be applied, should not ordinarily be itself the subject of procedural requirements relating to the conduct of an engagement.

A valid requirement in this area might have been to prohibit the use of proposed ISA 800 in certain circumstances (for example if the auditor is not also the auditor of the full financial statements). However, as the close off document did not decide that, it would be inappropriate to include such a requirement in the Clarified version.

We suggest eliminating this requirement entirely and reflecting the guidance in the Application and Other Explanatory Material (A&OEM) section.

Paragraph 15 is the other requirement in the Considerations when Accepting the Engagement part of the Audits of Specific Elements, Accounts or Items of a Financial Statement section of proposed ISA 800. It is a cross reference to ISA 200 together with guidance that ISA 200 applies whether or not the auditor is also engaged to audit the entity's financial statements. This should also be transferred to the A&OEM section, as it is non-essential guidance.

Other Matters

The Explanatory Memorandum forming part of the Exposure Draft invites comments on the following other matters:

• Special considerations in the audit of small entities
• Special considerations in the audit of public sector entities
• Developing nations
• Translations
• Undue costs

We have no significant comments on these matters.

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