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

During the audit of Kestrel Ltd, the auditor concludes that the financial statements are fairly presented. A major fire occurred after the year end; it is appropriately disclosed in note 25 as a non-adjusting event. The auditor believes users would benefit from attention being drawn to this note. Which approach is correct under ISA 706 (Revised)?

The auditor should add an Emphasis of Matter paragraph pointing to note 25 and stating that the opinion is not modified. The fire is already properly disclosed and fundamental to understanding, which is exactly what an Emphasis of Matter is for; an Other Matter paragraph covers undisclosed matters.

  1. AInclude an Emphasis of Matter paragraph referring to note 25 and state that the opinion is not modified in respect of the matterCorrect
  2. BInclude an Other Matter paragraph describing the fire in detail so that users understand its financial effect
  3. CIssue a qualified opinion because the fire is a significant uncertainty
  4. DPlace the description of the fire within the Key Audit Matters section only, without any reference to the disclosure

Explanation

An Emphasis of Matter paragraph refers to a matter already appropriately presented or disclosed in the financial statements that is fundamental to users' understanding. It must reference the note and state the opinion is not modified. An Other Matter paragraph is for matters not presented or disclosed in the financial statements, so it is wrong here.

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