Auditing Special Purpose Frameworks - Part 1

Welcome to the AccountingWEB series "Today's World of Audits" by Larry Perry, CPA, CPA Firm Support Services, LLC. You can see all of his articles here
AU-C Section 800 of the AICPA Professional Standards includes the Clarified Auditing Standard Special Considerations  Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks. Special purpose frameworks (SPF) include:
  • Cash or modified cash basis
  • Tax basis
  • Regulatory basis
  • Contractual basis
  • AICPA's FRF for SMEs
  • Other commonly accepted basis of accounting
This series of articles will discuss special considerations concerning:
  • Engagement acceptance
  • The planning and performance phase of this type of engagement
  • Determining an opinion and reporting on the audit
Engagement Acceptance
This standard references the clarified SAS Terms of Engagement, which requires an auditor to evaluate the appropriateness of an entity's applicable financial reporting framework. For special purpose frameworks, this requires an auditor to consider the purpose for which the financial statements are prepared, the known users of the financial statements, and what management has done to determine the applicable reporting framework is appropriate for these circumstances.
In an engagement letter, the auditor should obtain management's agreement that it is responsible for providing all informative disclosures (a fair presentation framework) in the financial statements and footnotes applicable to the financial reporting framework it has decided to use (its applicable reporting framework). Among those disclosures are:
  • A description of the SPF, its significant accounting policies, and the main differences from US GAAP.
  • Informative disclosures similar to those required by US GAAP.
  • Contractual frameworks, in addition, would include any significant interpretations of the contract used in preparing the financial statements.
  • Any additional disclosures necessary to comply with the requirements for a fair presentation framework in the clarified auditing standards.
The client acceptance and continuance decision-making requirements originated in the quality control standards first published in the 1980s, and they are now required by current auditing standards. Obtaining and documenting relevant organizational, environmental, and operating information as a part of engagement acceptance or continuance is, of course, a condition precedent to obtaining an engagement letter and planning an engagement. 
As for audits of any framework, the engagement leader (sole practitioner or partner) should deliver and discuss the engagement letter contents, along with other engagement planning subjects, with the management or governance person of the reporting entity that has engaged the CPA firm. Performing a client acceptance and continuance evaluation and delivering an engagement letter are often the first steps for compliance with the leadership involvement requirements of the AICPA Statement of Quality Control Standards No. 8.
Part 2 will begin discussing considerations for planning and performing an audit of a special purpose framework.
About the author:
Larry Perry, CPA, has over forty years' experience as a CPA practitioner, author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He is cofounder of CPA Firm Support Services, LLC (, an organization providing resources, training, and consulting to smaller CPA firms. Larry has been writing his AccountingWEB blog since 2009. He is currently developing documentation manuals and handbooks for small audits, reviews and compilations, and related electronic practice aids.

You may like these other stories...

Anti Burger Kings: Seven US companies shrinking tax the old-fashioned wayBurger King’s decision to combine with Canadian donut shop Tim Hortons is renewing controversy over the lengths some US companies will go to...
Read more from Larry Perry here and in the Today's World of Audits archive.Since the AICPA's Financial Reporting Framework for Small- to Medium-sized Entities (FRF for SMEs) and some other financial reporting...
The US Securities and Exchange Commission (SEC) has chosen a former partner and vice chairman with Deloitte LLP as its new chief accountant.James Schnurr, who specialized in financial and SEC reporting for public companies...

Already a member? log in here.

Upcoming CPE Webinars

Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 10
Transfer your knowledge and experience to prepare your team for the challenges and opportunities of an accounting career.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.