Project Status
Emphasis of Matter Paragraphs and Other Matter[s] Paragraphs in the Independent Auditor's Report - Completed
ObjectiveThe objective of this project was to redraft the close off document of ISA 706 [Revised], Emphasis of Matter Paragraphs and Other Matter[s] Paragraphs in the Independent Auditor's Report, in accordance with the
clarity drafting conventions agreed by the IAASB to be applied to all ISAs.
The IAASB approved ISA 706 [Revised and Redrafted], Emphasis of Matter Paragraphs and Other Matter Paragraphs in June 2008. The ISA is effective for audits of financial statements for periods beginning on or after December 15, 2009. A Basis for Conclusions will provide background to the project, main comments received on the exposure draft, and the IAASB's conclusions regarding these comments in developing
the final standard.
In March 2005, the IAASB issued an exposure draft of proposed ISA 706, Emphasis of Matter Paragraphs and Other Matter[s] Paragraphs in the Independent Auditor's Report.
The IAASB gave due consideration to the comments received on the proposed ISA. The basis for the IAASB's conclusions is explained in the Basis for Conclusions: Close Off Document - ISA 706 [Revised].
The IAASB approved the close off document of ISA 706 [Revised] [i.e., following the IAASB's current drafting conventions] in July 2006. That document incorporates the changes based on the comments received on the March 2005 exposure draft.
Task Force progress / Board discussions to dateIn July 2007, the IAASB approved an exposure draft of proposed ISA 706 [Revised and Redrafted], Emphasis of Matter Paragraphs and Other Matter[s] Paragraphs in the Independent Auditor's Report. The proposed ISA has been redrafted in accordance with the clarity drafting conventions agreed by the IAASB to be applied to all ISAs.
At the June 2008 meeting, the IAASB discussed a Summary of Significant Comments and Task Force Recommendations and proposed final ISA 706 9Revised and Redrafted].
Significant comments relating to ED-ISA 706 [Revised and Redrafted] included a revised objective and clarification within the ISA relating to the requirements in other ISAs for the auditor to include Emphasis of Matter paragraphs and Other Matter paragraphs in certain circumstances. Additionally, the IAASB agreed that material in proposed ISA 700 [Redrafted], Forming an Opinion and Reporting on Financial Statements, relating to Other Matter paragraphs should be moved to ISA 706 [Revised and Redrafted].
The IAASB approved ISA 706 [Revised and Redrafted], Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report as a final standard in June 2008.
The ISA will be published after the Public Interest Oversight Board has confirmed that due process was followed in its development.
Auditor is required to express his opinion in the form of a written report called auditor’s report. Although auditor’s responsibility and also the purpose of auditor’s report is to convey primarily the auditor’s opinion on financial statements but if auditor believes that there is a matter that must be brought to attention of user of financial statements then he do so by adding
either or both of additional paragraphs called emphasis of matter and other matter paragraph. Auditor adds emphasis of matter paragraph in the auditor’s report pertaining to matter that is already adequately disclosed or presented in the financial statement and in auditor’s judgement it is necessary to bring the matter to user’s attention and thus emphasizing it by referring to that matter
in the financial statements. On the other hand auditor adds other matter paragraph in the auditor’s report pertaining to matter other then those presented or disclosed in the financial statements and in auditor’s judgement it is necessary to bring the other matter to user’s attention by giving necessary details.
In short the purpose of both paragraph is to draw user’s attention to important piece of information that can help understand financial statements better. The distinguishing factor between two paragraphs is that one [emphasis of matter] is about the matters already disclosed in the financial statements and the second [other matter] is about matters that are not disclosed in the financial statements.
Some important points to note regarding both are:
- Inclusion of emphasis of matter or other matter paragraphs in a report with unmodified opinion does not qualify the opinion i.e. inclusion of any or both will not result in modification of auditor’s opinion. However, these paragraphs can be used even if opinion is modified.
- These paragraphs are included after opinion paragraph in the auditor’s report.
- If auditor intends to add both paragraphs in the same report then after opinion paragraph emphasis of matter paragraph will be added and subsequently other matter paragraph.
- If emphasis of matter and/or other matter paragraph is to be added then auditor shall discuss the wordings of paragraph with those charged with governance.
To learn in detail about the circumstances in which emphasis of matter paragraph is added to the auditor’s report read: What is Emphasis of Matter paragraph and when is it used?