An audit engagement does not always cover a complete set of financial statements. A lender may request an audited schedule of receivables, an investor may require an audit of a specific account, or an entity may need an audit of a single statement such as a cash flow statement. SA 805 (Revised) explains how the Standards on Auditing are adapted when the subject is narrower than a complete set of financial statements.
ICAI issued revised SA 805 with revised SA 800 and SA 810 in February 2024. It applies to audits of single financial statements or specific elements, accounts or items for periods beginning on or after 1 April 2024, and to such information prepared as at a specific date on or after that date. See the ICAI issuance page and the official SA 805 (Revised) text.
What does SA 805 cover?
SA 805 applies the SAs in the 100-700 series, adapted as necessary, to the audit of a single financial statement or a specific element, account or item. A single financial statement can be a cash flow statement. A specific element can be an account such as cash and bank balances. The subject also includes related notes, including relevant accounting policies and explanatory information.
The standard focuses on three stages: accepting the engagement, planning and performing it, and forming the opinion and reporting.
Step 1: Define exactly what is being audited
The engagement terms should make the boundary unmistakable. Is the auditor reporting on a cash flow statement, receivables, inventory, a benefit liability or another defined item? The answer drives the applicable accounting requirements, disclosures, materiality and procedures.
SA 805's examples include accounts receivable and the related allowance, inventory, certain benefit liabilities, identified intangible assets and specified financial schedules. Avoid a vague description that users could mistake for an audit of the complete financial statements.
Step 2: Decide whether an SA-compliant audit is practicable
All SAs relevant to the engagement still apply, whether or not the same auditor audits the complete financial statements. If the auditor is not auditing the complete set, SA 805 requires a determination of whether an audit of the narrower subject in accordance with SAs is practicable.
This matters because such an auditor may have less understanding of the entity, internal control and the overall quality of accounting records. Additional evidence may therefore be necessary. A narrow request is not a reason to reduce the work below what the relevant SAs require.
Step 3: Check the reporting framework and disclosures
The auditor considers whether the financial reporting framework used for the statement or element is acceptable. The presentation should provide enough disclosure for intended users to understand the information and the effect of material transactions and events.
An isolated number may therefore be insufficient. An inventory schedule, for example, may need relevant information about the measurement basis and other explanatory matters required by the applicable framework.
Step 4: Plan beyond the isolated account
Financial statement elements are often interconnected. Receivables interact with revenue and credit notes; inventory can interact with purchases, production costs, write-downs and payables; cash can interact with borrowings and restrictions.
SA 805 notes that procedures may be needed on interrelated items to obtain sufficient appropriate evidence. It also notes that materiality for a single financial statement or specific element may be lower than materiality for the complete financial statements, affecting the nature, timing and extent of procedures.
Step 5: Adapt the relevant SAs
The auditor considers which other SAs remain relevant and adapts them to the engagement. SA 805's application material highlights that fraud, related parties and going concern can still matter even when only one element is audited. Written representations should also be tailored to the specific statement or element.
ICAI's current standards index is a useful cross-reference for related SAs.
Step 6: Form a separate opinion and report clearly
SA 805 requires SA 700 (Revised), and SA 800 (Revised) when applicable, to be adapted for the report. If the auditor audits both the complete financial statements and a single statement or element, a separate opinion is expressed for each engagement.
If the specific audited information is published alongside the complete audited financial statements, it must be clearly differentiated so readers do not confuse the two opinions.
What if the complete financial statements have an adverse opinion or disclaimer?
If the complete financial statements carry an adverse opinion or disclaimer, SA 805 permits an unmodified opinion on a specific element only in limited circumstances: law or regulation must not prohibit it, the element report must not be published together with the adverse or disclaimer report, and the element must not constitute a major portion of the complete financial statements.
For a single financial statement forming part of the complete set, the auditor cannot express an unmodified opinion when an adverse opinion or disclaimer has been expressed on the complete financial statements as a whole.
Worked example: audit of an inventory schedule
Assume a lender asks a manufacturer for an audited year-end inventory schedule. The auditor first defines the subject and related notes, confirms the reporting framework, and sets materiality specifically for the schedule.
The work may extend beyond the physical count. Depending on the facts, evidence may be needed over purchase cut-off, costing, overhead allocation, slow-moving items, net realisable value and interrelated production or payable records. If the auditor does not audit the complete financial statements, additional work may be required to understand and corroborate the accounting records. The report expresses an opinion on the defined inventory information, not on the complete financial statements.
Practical SA 805 checklist
- Define the subject precisely. State the statement, element, account or item and related notes covered.
- Confirm practicability. Decide whether all relevant SAs can be applied to the requested engagement.
- Assess the framework. Confirm that the presentation and disclosures are suitable for intended users.
- Set specific materiality. Do not automatically reuse full-financial-statement materiality.
- Identify interrelated items. Plan procedures where other accounts or transactions affect the subject.
- Adapt relevant SAs. Consider fraud, related parties, going concern, representations and other requirements as relevant.
- Review any complete-set audit report. Consider whether its modifications or other matters affect the narrow engagement.
- Keep the opinion distinct. Make clear exactly what the auditor has and has not audited.
Common mistakes to avoid
- Treating a narrow scope as permission to perform fewer procedures than the relevant SAs require.
- Using complete-financial-statement materiality without reconsidering the specific element.
- Ignoring related notes because the request names only an account balance.
- Auditing an element in isolation when linked accounts are necessary evidence.
- Using report wording that could imply an opinion on the complete financial statements.
Practical takeaway
SA 805 is best understood as full audit discipline applied to a narrower financial reporting subject. Define the exact subject, confirm that an SA-compliant engagement is practicable, assess the framework and disclosures, set specific materiality, audit necessary interrelated information and issue a clearly limited opinion. A narrower subject changes the focus of the evidence; it does not lower the standard of evidence required.
