A community bank's loan covenant requires audited financial statements prepared on a "regulatory basis" defined by the state banking commissioner. The CFO asks why the auditor cannot simply hand over the GAAP report the bank already files with its parent. The answer is in AU-C 800, and in the three paragraphs the report needs that a GAAP report does not.
HIGH-FREQUENCY: AU-C 800, Special Considerations: Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks, applies whenever the financial statements are prepared on a basis other than GAAP or IFRS. The standard recognizes five accepted bases:
- Cash basis. Revenue recorded when cash is received; expenses when cash is paid. Pure cash and modified cash basis (e.g., capitalizing fixed assets and recording depreciation) both qualify.
- Tax basis. Statements prepared using the basis the entity uses to file its income tax return: Form 1120 for a C corporation, Form 1065 for a partnership, or Schedule C...
- Regulatory basis. A basis required by a regulator with jurisdiction: GASB statutory accounting for a state-regulated insurer, the FERC system of accounts for a utility, or a banking commissioner's prescribed...
Common mistakes
- Treating an SPF audit as a "less rigorous" engagement. AU-C 800 modifies the reporting, not the work. The audit risk model, evidence requirements, and documentation under AU-C 230 are unchanged. An answer choice that says "the auditor performs limited procedures because the framework is non-GAAP" is wrong.
- Omitting the mandatory emphasis-of-matter paragraph. Every AU-C 800 report on cash, tax, or other-basis statements must include the emphasis-of-matter alerting the user that the framework is not GAAP. The exam may show a draft report that reads cleanly but is missing this paragraph. That is the failure.
- Confusing regulatory-basis limited use with general use. Limited use = single opinion + restricted-use paragraph. General use = dual opinion (regulatory + GAAP adverse) + no restricted-use paragraph. Mixing them (issuing a single regulatory opinion with general distribution) is a reporting deficiency.
Bottom line
- AU-C 800 governs audits of complete financial statements prepared under a special-purpose framework: cash, tax, regulatory, contractual, or other basis acceptable to users.
- The audit risk model is unchanged. Risk assessment, materiality, evidence, and AU-C 230 documentation still apply; procedures are tailored to the framework, not relaxed.
- The report keeps the title "Independent Auditor's Report" and expresses an opinion, but the opinion paragraph references the SPF, not GAAP.
- A mandatory emphasis-of-matter paragraph alerts the reader the statements are prepared on an SPF and are not intended to conform with GAAP; no SPF engagement omits it.
Exam shortcut
When a question describes a basis of accounting other than GAAP for complete financial statements, map directly to AU-C 800. Then identify the basis: cash, tax, regulatory, contractual, or other. The five-basis list is itself a frequent answer-choice trap: choices that omit one or add a sixth ("industry basis," "managerial basis") are distractors. For regulatory-basis questions, look for the distribution scope.
The full lesson (about 2,356 words, 16 min read) adds 1 worked example, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- IV.E6
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