What are Special Purpose Financial Statements?
Special purpose financial statements are prepared under a framework designed for specific users rather than the general public. ISA 800 (Revised) governs their audit. The frameworks include tax bases, cash bases, contractual provisions, and regulatory requirements (ISA 800.A2).
ISA 800.6 is clear: all requirements of ISA 200–700 apply in full, with only the specific adaptations set out in ISA 800. The full risk-based audit approach applies. What changes is the framework against which the financial statements are evaluated, not the rigour of the audit itself.
ISA 800.14 requires a mandatory Emphasis of Matter paragraph in the auditor's report. This paragraph alerts readers that the financial statements are prepared under a special purpose framework and may not be suitable for other purposes. This is not discretionary — it is required on every special purpose engagement.
The auditor must still assess the acceptability of the applicable financial reporting framework under ISA 210.6(a). A contract may specify any framework, but the auditor must independently evaluate whether that framework is acceptable for the engagement before accepting it.
Key Points
- ISA 800.6 applies the full ISA framework — special purpose does not mean reduced procedures.
- ISA 800.14 requires a mandatory Emphasis of Matter paragraph on every special purpose audit report.
- Framework examples include tax basis, cash basis, contractual provisions, and regulatory requirements (ISA 800.A2).
- Framework acceptability must still be assessed under ISA 210.6(a) before the engagement is accepted.
Why it matters in practice
The most common error on special purpose engagements is omitting the Emphasis of Matter paragraph required by ISA 800.14. Teams treat it as optional or forget it entirely. Every special purpose audit report must include this paragraph, regardless of how familiar the intended users are with the framework.
Teams also fail to evaluate framework acceptability. A contract can specify any financial reporting framework — a loan covenant might require cash-basis statements, a regulator might prescribe its own reporting format. But the auditor must still assess under ISA 210.6(a) whether the framework produces financial statements that meet the needs of the intended users. Accepting a framework without this assessment is an engagement acceptance failure.
Restricted distribution is another area where practice diverges from the standard. When special purpose statements are intended for a limited group of users, the report should note this restriction. If the statements end up being distributed more broadly than intended, the auditor's Emphasis of Matter paragraph becomes even more critical because general users may not understand the framework's limitations.
Key standard references
- ISA 800.6: Application of ISAs — all requirements of ISA 200–700 apply with ISA 800 adaptations only.
- ISA 800.14: Emphasis of Matter requirement — mandatory paragraph alerting users to the special purpose framework.
- ISA 800.A2: Framework examples — tax basis, cash basis, contractual provisions, regulatory requirements.
- ISA 210.6(a): Framework acceptability — the auditor must assess whether the framework is acceptable before accepting the engagement.
Related terms
Frequently asked questions
Does a special purpose audit use a reduced version of ISAs?
No. ISA 800.6 applies all requirements of ISA 200–700, with only the adaptations specified in ISA 800. The full risk-based approach applies. What changes is the framework against which statements are evaluated.
Is the Emphasis of Matter paragraph optional for special purpose audits?
No. ISA 800.14 makes it mandatory. The paragraph alerts readers that the statements are prepared under a special purpose framework and may not be suitable for other purposes.