## 📘 Special Purpose Frameworks (SPFs) and Related Audit Requirements
### 🧾 What is a Special Purpose Framework (SPF)?
A **Special Purpose Framework** is a financial reporting framework other than GAAP, used primarily by **nonissuers** (private companies). Unlike general-purpose frameworks like U.S. GAAP or IFRS, SPFs serve specific reporting needs.
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### 📚 Types of Special Purpose Frameworks
1. **Cash Basis**: Records cash receipts and disbursements, with possible modifications like depreciation.
2. **Tax Basis**: Used for preparing financial statements aligned with income tax filings.
3. **Regulatory Basis**: Meets requirements of regulatory bodies (e.g., utility commissions).
4. **Contractual Basis**: Used to fulfill terms of a contract with specific third parties.
5. **Other Basis**: Any logical and reasonable framework applied consistently.
👉 Cash, Tax, and Regulatory bases are often called **OCBOA** (Other Comprehensive Bases of Accounting).
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### 🔍 Additional Auditor Responsibilities
When auditing SPF-based financial statements, auditors must:
- Understand the **purpose** of the financial statements and the **intended users**.
- Obtain management's acknowledgment of responsibility for appropriate disclosures, including:
- A description of the SPF and key accounting policies.
- Explanation of how it differs from GAAP.
- Disclosure of significant interpretations (especially under contractual basis).
- Any additional disclosures needed for fair presentation.
- Evaluate if management's interpretation of contractual terms is reasonable.
- Assess the entity’s ability to continue as a going concern—even if SPF does not require it.
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### 📝 Special Purpose Financial Statement Audit Report
The audit report for SPF financial statements includes unique elements:
#### 🧩 Key Differences from GAAP Reports:
- **Purpose Statement**: If necessary, state the financial statement’s intended use.
- **Non-GAAP Titles**: Use appropriate headings like:
- “Statement of Assets and Liabilities – Cash Basis”
- “Statement of Revenues and Expenses – Tax Basis”
- **Management’s Responsibility**: Must include their responsibility for selecting an appropriate SPF.
- **Emphasis-of-Matter Paragraph**:
- References the SPF used and where it is described.
- States that the framework is non-GAAP.
- May warn that statements may not suit other purposes.
- **Other-Matter Paragraph** (if needed):
- Restricts the report’s use to specific parties.
- Example: “For use only by ABC Company’s Board, management, and [regulator name].”
#### 🔔 Exception for Regulatory Basis Used for General Purpose:
If regulatory-basis statements are intended for general use:
- No **Emphasis** or **Other-Matter** paragraph.
- Auditor gives an opinion on:
- Fair presentation under the regulatory basis.
- Material departure from GAAP (usually a **qualified or adverse opinion**).
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### ✅ Minimum Required Elements of the Report
The audit report for SPFs must include:
- Title indicating it's an independent auditor’s report.
- Addressee.
- Description and opinion on the SPF financial statements.
- Explanation of financial statement purpose (if needed).
- Statement of auditor’s independence and ethics compliance.
- Responsibilities of management and the auditor.
- Reference to any laws or regulations involved.
- Emphasis or Other-Matter paragraphs (if applicable).
- Auditor’s signature.
- City and state where the report is issued.
- Date of the report.
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### 📄 Sample Reports
1. **Cash Basis (Nonissuer)**:
- Includes Emphasis-of-Matter on cash basis (non-GAAP).
2. **Regulatory Basis (General Use, Nonissuer)**:
- Provides unmodified opinion on regulatory basis.
- Expresses an adverse opinion on GAAP due to significant differences.
- No Emphasis or Other-Matter paragraph.
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### 🔚 Conclusion
SPFs offer flexibility for nonissuers with specific reporting needs. However, auditors must meet additional requirements beyond a GAAP audit. Reports must clearly describe the framework used and often restrict the report's usage to ensure appropriate understanding by users.
