ISA 706 - EMPHASIS OF MATTER & OTHER MATTER PARAGRAPHS Flashcards
ISA 706
ISA 706
EMPHASIS OF MATTER & OTHER MATTER PARAGRAPHS
Emphasis of Matter Paragraph
TO DRAW THE READER’S ATTENTION to a matter appropriately presented or disclosed in the financial statements (usually in the NOTES to the F/S) that are of such importance that they are FUNDAMENTAL to users’ understanding of the FINANCIAL STATEMENTS.
Circumstances of when EOM is appropriate - SUBREM
S - Significant subsequent event Circumstances
U - Uncertainty relating to the future outcome of when EOM is appropriate of exceptional litigation or regulatory action.
B - Basis of preparation of FS changed from going concern to non-going concern
R- Revision of FS AFTER they had been issued. (EOM to draw attention to the note in FS explaining the reason for the revision of the previously issued FS & audit report AND to state that auditor’s procedures on subsequent events are restricted solely to related amendments only.)
E - Early application of a new IFRS that has a material effect on the FS.
M - Major catastrophe that has had, or continues to have, a significant effect on the entity’s financial position
ISA 706
EOM
Is THIS a matter that comes under the circumstances mentioned in ISA 706?
> NO > END
> YES > Has THIS matter been adequately disclosed in the NOTES to the F/S? > YES > EOM
RULES on usage of EOM para
▪ The EOM cannot be a Key Audit Matter
▪ An EOM para cannot be used if opinion is modified in respect of the matter. Meaning: No limitation of scope or misstatement on the matter
▪ An EOM para is not a substitute for a modified opinion.
▪ An EOM para is not a substitute for reporting on Material Uncertainty .
▪ An EOM para must not include information that should be provided by management. EOM para cannot be used to make good the lack of disclosure.
Meaning: This paragraph SHOULD NOT contain any new information, but should ‘refer only to information presented or disclosed in the financial report’
ISA 706
CONTENT, TITLE & POSITION of EOM paragraph
**Emphasis of Matter **- Effects of a Fire
We draw attention to Note X of the financial statements, which describes the effects of a fire in the Company’s
production facilities. Our opinion is not modified in respect of THIS matter.
Details of WHERE in the FS more info on the matter can be found.
A brief summary of the note in the FS.
EOM para cannot be light on detail.
Make clear that the audit opinion is NOT modified in respect of this matter.
The para is placed within a SEPARATE SECTION of the auditor’s report. Title : ‘Emphasis of Matter’ Position: Following Basis For Opinion para
ISA 706
Other Matter Paragraph
TO DRAW THE READER’S ATTENTION
to any matter or matters OTHER THAN those presented or disclosed in the financial statements that are relevant to users’ understanding of the AUDIT, the Auditor’s RESPONSIBILITIES or the auditor’s REPORT.
CIRCUMSTANCES OF WHEN OM IS APPROPRIATE:
Revision of FS AFTER they had been issued. (To explain the reason for the revision of the previously issued FS & audit report AND to state that auditor’s procedures on subsequent events are restricted solely to related amendments only.)
Restriction on the distribution or use of the auditor’s report.
Initial engagement (prior year F/S have been audited) - OMP is optional
Initial engagement (prior year F/S have NOT been audited) - OMP mandatory
Is THIS a matter that comes under the circumstances mentioned in ISA 706?
YES > OMP
NO > End
KEY POINTS to remember
▪ The OM cannot be a Key Audit Matter
▪ The content of an OM paragraph must reflect clearly that the Other Matter is not required to be presented & disclosed in the financial statements.
▪ An OM paragraph must not include information that the auditor is prohibited from providing by law, regulation or ethical standards relating to confidentiality of information.
▪ An OM paragraph must not include information that should be provided by management.
▪ When the OM section includes > one matter, it may be helpful to use different sub-headings for each matter.
ISA 706
Wording of OM para -
Examples of an Other Matter paragraph in an auditor’s report.
Other Matter - Initial engagement
The financial statements of ABC Company for the year ended September 30, 20X4, were audited by another auditor who expressed an unmodified opinion on those statements on March 31, 20X5.
Other Matter – Initial engagement
The financial statements of ABC Company for the year ended September 30, 20X4, were unaudited.
Other Matter - liability disclaimer
The auditor’s report is intended solely for the use of the company’s members AS A BODY, and that no responsibility is accepted or assumed to anyone other than the company and the company’s members as a body.
