The emphasis of matter paragraph and other matter paragraph are regulated by international standards on auditing (ISA) 706 emphasis of matter paragraph and other matter paragraph.
The emphasis of matter paragraph
This is the paragraph that is included in the auditors report that refers to the matter appropriately presented or disclosed in the financial statements thatch, in auditors’ judgment is of such importance that it is fundamental to the user’s understanding of the financial statement.
In other words, the emphasis of matter paragraph is paragraph added by the auditor in his report in which auditor says again about the matter which management has correctly stated in the financial statement, but auditor thinks it is important for him to say it again in his report so that users of financial statement can see its importance.
When auditor includes an emphasis of matter paragraph in the auditor’s report, the auditor shall:
- It includes a separate section in the auditor’s report.
- Use any appropriate heading including the term ’emphasis of matter’
- Include in the paragraph a clear reference to a matter being emphasized and to where relevant disclosure that fully describes the matter can be found in the financial statements.
- Indicate that the auditor’s opinion is not modified in respect of the matter emphasized
The matter emphasized in the emphasis of matter paragraph must not be:
- requiring modification as per ISA 705; or
- determined to be key audit matter to be communicated in auditor’s report
The inclusion of emphasis of matter paragraph in the auditor’s report does not affect the auditor’s opinion. An emphasis of matter paragraph is not substituted for either:
- The auditor expressing a modified opinion as per ISA 705 (revised); or
- Disclosure in the financial statements that the applicable financial reporting framework requires management to make.
- Reporting in accordance with ISA 570 (revised) when material uncertainty exists relating to events or conditions that may cast significant doubt on the entity’s ability to operate as a going concern.
Example of the circumstances which may lead to the inclusion of emphasis of matter paragraph in the auditor’s report include
- Uncertainty relating to the future outcome of exceptional litigation or regulatory action
- Early application (where permitted) of new accounting standards that have a pervasive effect on the financial statements in advance of its effective date
- A major catastrophe that has had, or continues to have, a significant effect on the entity’s financial position
- The existence of material uncertainty relating to the event or the condition that may cast significant doubt on the entity’s ability to continue as a going concern but have been appropriately disclosed
Other matter paragraph
This is paragraph included in auditor’s report that refers to the matter other than those presented or disclosed in the financial statements that, in auditor’s judgment is relevant to users’ understanding of the audit, the auditor’s responsibilities, or auditor’s report.
The auditor is allowed to use other matter paragraph where:
- This is not prohibited by law or regulation, and
- The matter has not been determined as a key audit matter to be communicated in the auditor’s report (ISA701).
The content of other matter paragraphs reflects clearly that such other matters are not required to be presented and disclosed in the financial statements. Another matter paragraph does not include information the auditor is prohibited from providing by law, regulation, or other professional standards, for example, ethical standards relating to the confidentiality of information. Other matter paragraph does not include information that is required to be provided by management.
Examples of circumstances that may lead to the inclusion of other matter paragraph in the auditor’s report include
- When auditors can not withdraw from engagement even though the possible effect of limitation of scope imposed by management is pervasive.
- Any matter which in the auditor’s opinion is relevant to the user’s understanding of the auditor’s responsibilities or auditor’s report
- When there is a restriction on distribution or use of the audit report
- When the auditor is required to report on more than one set of financial statements
- Any matter which in the auditor’s opinion is relevant to the user’s understanding of the audit