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a matter of
relevant to acca qualification papers F8 and p7
opinion?
Emphasis of Matter Other Matters If you face a question of this nature
Emphasis of matter (EOM) is rarely ‘Other matter’ paragraphs are used simplify your task by asking the
dealt with satisfactorily in the exam. to refer to matters that have not been following questions:
This is mainly because candidates disclosed in the financial statements ¤ Is there a misstatement in the
believe that EOM is linked somehow to that the auditor believes are significant financial statements (ie a fraud
modifications of the opinion. This is not to user understanding. One usage of or error)?
the case: EOM and modified opinions these paragraphs is where the auditor ¤ Has the auditor gathered sufficient
are totally separate matters. concludes that there is a material appropriate evidence?
The purpose of an EOM paragraph is inconsistency between the audited ¤ Is/could the matter be material?
to draw the users attention to a matter financial statements and the other ¤ Does the matter pervade the
already disclosed in the financial (unaudited) information contained financial statements?
statements because the auditor within the annual report and accounts, ¤ Does the scenario refer to a
believes it is fundamental to their as required by ISA 720, The Auditor’s disclosure made in the financial
understanding. It is a way of saying to Responsibilities Relating to Other statements concerning an uncertain
the users: ‘you know that note in the Information in Documents Containing future event?
financial statements, the one about Audited Financial Statements.
the uncertainty surrounding the legal Based on this approach you should be
dispute? Well us auditors think it’s Application to exam questions able to pinpoint exactly what form of
really important, so make sure you’ve Now that we have recapped the basic opinion is appropriate and whether an
read it!’. principles of audit opinions let us EOM paragraph is necessary.
The usage of EOM paragraphs is consider how these may be applied to As an example, Question 5 in the
described in ISA 706, Emphasis of an exam scenario. June 2009 Paper P7 exam asked
Matter Paragraphs and Other Matter Questions on audit reports in Paper candidates to ‘critically appraise the
Paragraphs in the Independent Auditor’s P7 typically fall into two distinct types: proposed audit report of Pluto Co
Report. This identifies three examples critical appraisal of an audit report that for the year ended 31 March 2009’.
of circumstances when the usage of has already been written; or explanation Relevant extracts from the audit report
EOM is appropriate: of how matters will affect an audit are given in Illustration 1. The full
¤ when there is uncertainty about opinion. In both cases the principles text may be downloaded from the
exceptional future events affecting the choice of audit opinion are ACCA website.
¤ early adoption of new accounting the same. Please note that the extract is
standards and from the International version of the
¤ when a major catastrophe syllabus and refers to International
has had a major effect on the Accounting Standards.
financial position.
This is largely irrelevant to our Response – redundancy provision There is no indication in the audit
understanding of the audit opinion; We are not going to consider the whole report that the auditor considers
however, the question does deal wording, merely the choice of opinion. the matter pervasive. It should also
with matters where the financial A more complete response is given be considered that redundancy
reporting requirements across different in the model answer, which can be provisions will only affect two
accounting regimes are broadly similar. accessed via the ACCA website. areas of the financial statements:
The company in the question is a The first question to ask is whether current liabilities and wages/salary
listed company. there is a misstatement. The answer costs. Does misstatement here
to this is clearly ‘yes’ as the report render the remainder of the financial
Illustration 1 (when this question concludes that the directors have statements unreliable? This is an
was written, isa 701 was examinable and failed to make a provision when they unlikely conclusion.
disagreement with management was a should have. This contravenes the It therefore appears unlikely that
reason for qualifying a report) relevant accounting framework (IAS 37, an adverse opinion is necessary
Provisions, Contingent Liabilities and in the circumstances. A qualified
Adverse opinion arising from Contingent Assets). The report also (‘except for’) opinion would appear
disagreement about application of IAS 37 clearly states that this is considered to more appropriate.
The directors have not recognised a be material to the financial statements.
provision in relation to redundancy Next we have to consider whether Earnings per share (EPS)
costs… and so the recognition criteria the auditor has been able to gather The second issue is that of the EOM
of IAS 37 have not been met. We sufficient appropriate evidence. Once paragraph. Ask the question referred
disagree with the directors as we feel again the answer is ‘yes;’ the auditor to earlier: does the scenario refer to
that an estimate can be made… We feel has been able to reach a considered a disclosure made in the financial
that this is a material misstatement as conclusion on the matter. statements concerning an uncertain
the profit for the year is overstated. At this point we have established future event? Clearly the answer is
In our opinion, the financial that there is a material misstatement. no. Therefore an EOM paragraph is
statements do not show a true and fair Therefore, we will have to modify not appropriate.
view of the financial position of the our opinion. However, the final version If this is the case how should the
company as of 31 March 2009... of the modification depends upon matter be dealt with? Well, go through
whether the matter is pervasive the same questions again. First, is
Emphasis of matter paragraph or not. there a misstatement?
The directors have decided not to
disclose the Earnings per share for
2009… Our opinion is not qualified in
respect of this matter.