Auditing of single financial statements and specific elements, accounts, or items of a financial statement

 Element of a financial statement or element means an element, account, or item of a financial statement.

Examples of Specific Elements, Accounts or Items of a Financial Statement are listed below:

 ● 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.

● A schedule of externally managed assets and income of a private pension plan, including related notes. 

● A schedule of net tangible assets, including related notes.

● A schedule of disbursements in relation to a lease property, including explanatory notes.

● A schedule of profit participation or employee bonuses, including explanatory notes

A single financial statement or a specific element of a financial statement includes the related disclosures. The related disclosures ordinarily comprise explanatory or other descriptive information relevant to the financial statement or to the element.

In the case of many frameworks, financial statements are intended to provide information about the financial position, financial performance, and cash flows of an entity. For such frameworks, a complete set of financial statements would include a balance sheet; an income statement; a statement of changes in equity; a cash flow statement; and related notes. For some other financial reporting frameworks, a single financial statement and the related notes might constitute a complete set of financial statements. Examples of a single financial statement, each of which would include related notes, are:

○ Balance sheet.

○ Statement of income or statement of operations. ○ Statement of retained earnings.

○ Statement of cash flows.

○ Statement of assets and liabilities that does not include owner’s equity.

○ Statement of changes in owners’ equity.

○ Statement of revenue and expenses. ○ Statement of operations by product lines.

Considerations when planning and performing the audit of a single financial statement and specific elements of financial statements.

When planning and performing the audit of a single financial statement and an element of a financial statement an auditor should be guided by the following things:

(a)    Because the element could be misstated as a result of fraud, the effect of related party transactions, or the incorrect application of the going concern basis of accounting under the applicable financial reporting framework, an auditor should take into account the auditor responsibility relating to fraud, related parties’ matter and going concern assumption.

(b)   Written representations from management about the complete set of financial statements would be replaced by written representations about the presentation of the single financial statement or the element in accordance with the applicable financial reporting framework.

(c) When auditing a single financial statement or a specific element of a financial statement, the       auditor may not be able to consider the financial statement or the element in isolation. Consequently, the auditor may need to perform procedures in relation to the interrelated items to meet the objective of the audit.

(d) The materiality determined for a single financial statement or for a specific element of a financial statement may be lower than the materiality determined for the entity’s complete set of financial statements; this will affect the nature, timing and extent of the audit procedures and the evaluation of uncorrected misstatement.

 Audit reporting considerations in relation to the audit of a single financial statement and specific elements of financial statements

If the auditor undertakes an engagement to report on a single financial statement or on a specific element of a financial statement in conjunction with an engagement to audit the entity’s complete set of financial statements, the auditor shall express a separate opinion for each engagement.

Depending on the applicable financial reporting framework used in the preparation of the single financial statement or the specific element of a financial statement, the description in the auditor’s report of management’s responsibilities 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.

For audits of a single financial statement or a specific element of a financial statement Key Audit Matters requirements only apply if communication of KAM in the auditor’s report on such financial statements or elements is required by law or regulation, or the auditor otherwise decides to communicate key audit matters.

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, the auditor should not 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 of those financial statements.

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 of those financial statements, the auditor nevertheless considers it appropriate to express an unmodified opinion on that element, the auditor shall only do so if:

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

Ø 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; and

Ø The element does not constitute a major portion of the entity’s complete set of financial statements.