AUD 1 - Emphasis-of-Matter, Other-Matter, and Explanatory Paragraphs

Question 1

Define emphasis-of-matter for nonissuer (private company)

Answer 1

Refers to an item that is appropriately present or disclosed (we just want to highlight what has happened in the F/S) = still unmodified

• It’s already there
• We are just highlighting it

Question 2

Does an emphasis-of-matter for nonissuer (private company) affect the auditor’s opinon?

Answer 2

It DOES NOT AFFECT the auditor’s opinon

Question 3

Where is the placement of the emphasis-of-matter for nonissuer (private company)?

Answer 3

AFTER the opinion paragraph

AND

BEFORE the “other-matters” paragraph

Question 4

When is an empahsis-of-matter for nonissuer (private company) required?

Answer 4

Required when:

1) Going concern
2) Justified change in accounting principle
3) Subsquently discovered facts that lead to a change in our opinion
4) FS are prepared with a special purpose framework

Question 5

Explain why an auditor would use an emphasis-of-matter for nonissuer (private company) when not required to?

Answer 5

Use may be necessary - use professional judgement

1) Uncertainty
2) Major catastrophe
3) Related party transactions
4) Subsequent events

Question 6

Define the probability of either accruing, disclosing footnotes, or being remote for uncertainties.

Answer 6

1) Probable and reasonably estimable = accrue (make journal entries in financial statements)
2) Probable OR reasonably estimatable = footnotes
3) Remote (far-fetched) = omit entirely

Question 7

Define other-matters-paragrah for nonissuer (private company)

Answer 7

Reefers to matters OTHER THAN those presented or disclosed in FS:

• Auditor feels other-matters paragraph is relevant to the users’ understanding (NOT IN FS OR IN NOTES)

Question 8

Where is the placement of the other-matters-paragrah for nonissuer (private company)

Answer 8

Last item in report -

AFTER opinion

And

AFTER emphasis-of-matter

Question 9

When is an other-matters paragraph required for nonissuer (private company) required?

Answer 9

Required when:

1) An alert in the report that RESTRICTS THE USE of the auditor’s report (only allowed to be used by bank)
2) There were subsequently discovered facts that lead to a CHANGE IN AUDIT OPINION (option of using emphasis-of-matter or other-matters paragraph
3) Previous auditor’s prior period audit report was NOT REISSUED
4) The current year financial statements are comparative, and last year was NOT audited, reviewed, or compiled
5) When the auditor refers to required supplementary information
6) There is a report on compliance

Question 10

Explain why an auditor would use an other-matters paragraph for nonissuer (private company) when not required to?

Answer 10

Use may be necessary - use professional judgement

1) Reasons why the auditor cannot withdraw
2) Further explanation of auditor responsibilities
3) Different general-purpose framework used