What is a single financial statement audit?
A client's lender asks for an audited schedule of accounts receivable. The partner agrees, the team pulls the receivables section from last year's full-set file, sets materiality using profit before tax, and issues a clean opinion. Three months later the firm's quality reviewer flags the engagement: wrong materiality basis, no interrelationship documentation, and no consideration of whether the opinion conflicts with the qualified full-set report issued the same month. The file doesn't tell a story about how ISA 805 was applied. It tells a story about a full-set audit with everything except receivables deleted.
ISA 805 (Revised) governs engagements where the auditor forms an opinion on one financial statement (such as a statement of cash receipts and disbursements) or on a specific element of a financial statement, such as a schedule of accounts receivable or a royalty calculation. ISA 805.7 applies all ISAs to the engagement. The full risk-based approach is required.
What changes are two specific considerations that don't arise in a full-set audit, plus a reporting constraint. First, materiality must be set relative to the single statement or element ( ISA 805.10 ), not the full financial statements (FS). A revenue schedule audit uses revenue as the materiality denominator, not total assets or profit before tax. This typically produces a lower materiality threshold because the denominator is smaller.
Second, the auditor must consider interrelationships between the element being audited and other components of the FS ( ISA 805.11 ). Auditing a schedule of accounts receivable requires considering revenue recognition, deferred revenue, and cash collections. The element doesn't exist in isolation.
Finally, ISA 805.13 addresses the risk of conflicting opinions. If the auditor issues an adverse opinion on the full set of FS but an unmodified opinion on a single element within those statements, the auditor must consider whether the element-level report effectively contradicts the full-set opinion.
Key Points
- ISA 805.7 applies the full ISA framework to single-statement and single-element engagements.
- Materiality is set relative to the element being audited ( ISA 805.10 ), producing a typically lower threshold than the full-set audit.
- The audited element doesn't exist in isolation. Interrelationships with other FS components must be documented ( ISA 805.11 ).
- Conflicting opinions between element-level and full-set reports must be evaluated under ISA 805.13 .
Why it matters in practice
Teams frequently use full-set materiality benchmarks instead of element-specific ones. On a revenue schedule audit, the materiality calculation should reference total revenue, not the entity's total assets or profit before tax. Using the wrong denominator inflates materiality and reduces the audit's sensitivity to misstatements that would be material in the context of the element being reported on.
Interrelationship documentation under ISA 805.11 is often missing entirely. A revenue schedule audit requires considering receivables and cash collections. A fixed asset schedule audit requires considering depreciation and impairment. If the file documents only procedures on the element itself without addressing how related balances affect its completeness and accuracy, ISA 805.11 hasn't been applied. The file should tell a story about how the element connects to the rest of the FS, not just that the element's own balance was tested.
The conflicting opinions issue under ISA 805.13 is rare but serious. If the full-set audit results in a disclaimer of opinion due to scope limitations, issuing a clean ISA 805 opinion on an element within those same FS may undermine the credibility of the disclaimer. The auditor must assess whether the ISA 805 report could be interpreted as providing assurance that contradicts the full-set conclusion. When it goes wrong, the reputational damage to the firm is disproportionate to the fee earned on what is usually a small add-on engagement.
Key standard references
ISA 805.7 confirms that all ISAs apply to single-statement and single-element engagements. ISA 805.10 requires materiality to be determined with reference to the single statement or element being audited, not the full FS.
ISA 805.11 requires the auditor to consider how other FS components affect the audited element. ISA 805.13 addresses conflicting opinions: the auditor must evaluate whether the element-level opinion undermines a modified full-set opinion.
Related terms
Related reading
Frequently asked questions
How is materiality determined for an ISA 805 engagement?
ISA 805.10 requires materiality to be set with reference to the single statement or element being audited, not the full financial statements. This often produces lower materiality because the denominator is smaller.
Can conflicting opinions exist between ISA 805 and the full-set audit?
ISA 805.13 addresses this directly. If the auditor issues an adverse opinion on the full set but an unmodified ISA 805 opinion on a single element, the auditor must consider whether the ISA 805 report undermines the full-set opinion.