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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Auditor's reports

Auditor Ravi is reporting on Orchid Co. Which of the following would be an inappropriate use of an Emphasis of Matter paragraph?

Using an Emphasis of Matter paragraph to avoid a qualified opinion is inappropriate. If a material provision is not disclosed, the financial statements are materially misstated, so ISA 705 requires a modified opinion. Emphasis paragraphs only highlight matters already appropriately disclosed and do not replace modification.

  1. ADrawing attention to a disclosed early adoption of a new accounting policy with a material effect
  2. BHighlighting a matter in order to avoid issuing a qualified opinion, where a material misstatement exists because a material provision has not been disclosedCorrect
  3. CReferring to a disclosed significant related party transaction that is fundamental to users' understanding
  4. DDrawing attention to a disclosed major subsequent event after the reporting date

Explanation

An Emphasis of Matter paragraph must not be a substitute for a modified opinion. If a material misstatement exists because of non-disclosure, the auditor must modify the opinion under ISA 705. The other options involve matters appropriately disclosed and fundamental to understanding.

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