ISA 805: Special considerations to be taken into account.

ISA 805 includes the special considerations that an auditor or statutory auditor should take into account when auditing a single financial statement, specific item, account or line item in relation to accepting, planning and performing the engagement and expressing an opinion.

ISA 805 Special Considerations – Audits of a single financial statement or specific financial statement element, account or line item deals with special considerations in applying ISAs to the audit of a single financial statement, financial statement element or line item. It should be noted that this ISA is not applicable to the issuance of an auditor’s report of a component auditor at the request of a group engagement team, for which ISA 600 should be considered.

The study of this ISA requires knowledge of the definitions and guidelines included in ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing.

The auditor’s objective in applying International Standards on Auditing in the audit of a single financial statement, item, account or item thereof is to appropriately apply the considerations for acceptance, planning and execution of the engagement and the formation of an opinion on the specific financial statement, item, account or item.

Considerations for acceptance of the engagement

Although ISA 200 states that ISAs should be applied in relation to engagements to audit financial statements, the auditor, in the exceptional circumstances where the auditor considers that there is an ISA that is not applicable to the audit of a financial statement, item, item or account, may consider it necessary not to comply with that requirement and may apply alternative audit procedures in order to comply with the objective of ISA 805.

Although ISA 200 states that ISAs should be applied in relation to engagements to audit financial statements, the auditor, in the exceptional circumstances where the auditor considers that there is an ISA that is not applicable to the audit of a financial statement, item, item or account, may consider it necessary not to comply with that requirement and may apply alternative audit procedures in order to comply with the objective of ISA 805.

“the auditor should evaluate the engagement, as well as the tools, time and effort required to perform such specific work and define whether it is feasible to perform it.”

Compliance with the guidance in the ISAs applicable to engagements to audit a single financial statement, item, line item or account may not be feasible when the auditor has not also been engaged to audit the financial statements as a whole, because the auditor does not have the same information, knowledge of the entity and evidence as the auditor engaged to audit the financial statements as a whole, and may incur disproportionate cost and effort in seeking audit evidence to perform the engagement; Therefore, the auditor must evaluate the assignment, as well as the tools, time and effort required to perform such specific work and define whether it is feasible to do so.

An example of the above is the audit of accounts receivable: because accounts receivable is a specific item in the financial statements, it is very likely that too much time and effort will be required to obtain information to perform an effective audit, therefore, it can be concluded that it would be better for the same auditor of the financial statements as a whole to also evaluate this specific item.

In this regard, ISA 805 includes some examples on specific elements, accounts or line items of a financial statement.

“Accounts receivable, valuation allowance for accounts receivable, inventories, pension liability, the recorded value of identified intangible assets or “incurred but not disclosed” liability for an insurance portfolio, including related explanatory notes.

An accounting statement of externally managed assets and income of a private pension fund, including the related explanatory notes.

An accounting document of net tangible assets, including the corresponding explanatory notes.

An accounting document of payments related to a fixed asset under lease, including the corresponding explanatory notes.

An accounting document for profit-sharing or employee incentive payments, including related explanatory notes.”

Considerations relating to the performance of the assignment.

As the auditor may be required to obtain evidence or perform procedures in relation to other elements of the financial statements in order to audit a single financial statement, item, line item or specific account, the auditor may do so by applying the ISAs and adapting them as circumstances require.

On the other hand, the materiality determined for a single financial statement, item, line item or account may be less than the materiality assigned to the financial statements as a whole, which may affect the assessment of uncorrected misstatements.

Opinion Formation and Reporting Considerations.

“If the information is presented in accordance with an authoritative and recognized financial reporting framework, the auditor may include in its unmodified opinion phrases such as: “presents fairly, in all material respects” or “expresses a true and fair view”.”

Another aspect to be considered in the acceptance of the engagement is the technical regulatory framework applied to the financial information, since this should allow the data provided by the entity to be useful for users. If the information is presented in accordance with an authorized and recognized financial reporting framework, the auditor may include in its unmodified opinion phrases such as: “presents fairly, in all material respects” or “expresses a true and fair view”.

Modified opinion, emphasis of matter or paragraph on other matters

Consideration should be given to the information contained in the auditor’s report on the financial statements as a whole, i.e., when the financial statements as a whole have a modified opinion, contain an emphasis of matter paragraph or a paragraph on other matters, the auditor of the financial statements of a specific financial statement, item, item or account should consider the effects that the considerations included in the opinion may have on the auditor’s audit.

Accordingly, if the auditor wishes to issue an unmodified opinion in the auditor’s report on a specific financial statement, he may not do so when the opinion on the financial statements as a whole contains an unfavorable or disclaimer of opinion, as this would establish an inconsistency. However, if it concludes that it is necessary to express such an opinion it may do so if legal provisions do not prohibit it, if the opinion it expresses is not issued in conjunction with the audit report on the financial statements as a whole, and if the specific financial statement, element, account or item does not constitute a material part of the complete set of financial statements.

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