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CMA Intermediate · Corporate Accounting and Auditing · Audit Report and Reporting under CARO

Under SA 706 (Revised), an auditor may include an Emphasis of Matter paragraph about a matter disclosed in the financial statements of Ganga Foods Ltd. Which condition must be satisfied?

The key condition is that the auditor would not be required to modify the opinion under SA 705 (Revised) because of that matter. An EOM paragraph draws attention to a properly disclosed matter fundamental to users' understanding, and it does not affect the auditor's opinion.

  1. AThe auditor must also have qualified the opinion on that matter
  2. BThe auditor would not be required to modify the opinion under SA 705 (Revised) as a result of the matterCorrect
  3. CThe matter must not have been disclosed in the financial statements by management
  4. DThe matter must relate only to events after the balance sheet date

Explanation

SA 706 (Revised) allows an EOM paragraph only if the auditor would not be required to modify the opinion under SA 705 (Revised) because of the matter. Also, where SA 701 applies, the matter must not have been determined to be a key audit matter. The other options contradict this: an EOM refers to a matter presented or disclosed in the financial statements and does not accompany a qualification on the same matter.

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