Emphasis of Matter & Other Matter Paragraph

ISA 706 Emphasis of Matter & Other Matter Paragraph

·         It is fundamental to users’ understanding of the Financial Statement.
·         The matter is adequately disclosed in the financial statement.

Q: How to judge in question whether or not the Matter is Fundamental?

A: If the Matter is Material, then it will fundamental to user’s understanding.

Total Assets:    1% to 25%
Revenue:         0.5% to 15%
PBT:                 5% to 25%

Disclosures in the financial statements that the applicable financial reporting framework requires management to make, or that are otherwise necessary to achieve fair presentation.

The auditor would not be required to modify the opinion in accordance with ISA 705 (Revised) but it ‘modifies the report’

Placement of EOM Para in Report:

·         Include it immediately after the Basis of Opinion para in audit report.
·         When a Key Audit Matters section is presented in the auditor’s report, an Emphasis of Matter paragraph may be presented either directly before or after the Key Audit Matters section, based on the auditor’s judgment

·         Include the Paragraph a clear reference to the matter emphasized.
·         Include that the auditor’s opinion is not modified in respect of the matter emphasized.

Emphasis Matter Paragraph in following Situations:
·         Uncertain future outcome to litigation.
·         A major catastrophe that has had, or continue to have, a significant effect on the entity’s financial position.
·         Early application of an accounting standard.
·         A significant subsequent event that occurs between the date of the financial statements and the date of the auditor’s report.

Difference between Emphasis of Matter Paragraph
 Other Matter Paragraph

Emphasis of matter
Other matter
What is it?
Draws attention to fundamental issue in the fs
Draws attention to another issue user need to know about
What is it Heading?
Emphasis of matter
Other matter

Highlights the matter in the FS by reference to its page or note number
The effect on the auditor's responsibilities
Impact on opinion?
Uncertainty regarding a contingent liability
Auditor wishes to resign but legally cannot

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