SA 706

Emphasis of Matter Paragraphs and Other Matter Paragraphs in the

Independent Auditors Report

Prepared and Presented byDipendra Prasad Poudel

WHAT WE WILL DISCUSS? SCOPE Effective Date Objective Various terms and Definition Application and Other Explanatory mate

rial

SCOPE When auditor considers it necessary to

draw users attention to a/any matter: Presented in financial statement

Other than those presented in financial statement

EFFECTIVE DATE

Beginning On or After April 1, 2011

WHY THIS SA WAS INTRODUCED?OBJECTIVE OF THIS SA

The main objective of this SA is to draw users attention, by way of clear additional communication in auditor’s report:

1. A matter although appropriately presented or disclosed in financial statements that is of such importance that it is fundamental to users understanding of the financial information

2. As appropriate, any other matter that is relevant to users understanding of the audit, the auditor responsibilities or the auditors report.

VARIOUS TERMS AND DEFINITIONS For the purpose of this SA the following terms have meaning attributed below. Emphasis on matter paragraph Matter appropriately presented or disclosed in financial statements In auditors judgment it is fundamental to users understanding Other matter paragraph matter other than those presented or disclosed In auditors judgment it is fundamental to users understanding.

EMPHASIS ON MATTER PARAGRAPH ON AUDITORS REPORT

When the auditor decide to use emphasis on matter paragraph the auditor shall:

1. Include immediately after opinion paragraph in auditors report.

2. Use the heading of “ Emphasis of matter” or other appropriate heading.

3. Include in the paragraph a clear reference to the matter being emphasized and to where the matter can be found

4. Indicate that the auditors opinion is not modified in respect to matter emphasised

OTHER MATTER PARAGRAPHS

The auditor shall include this paragraph immediately after “Opinion paragraph” or any “Emphasis on matter paragraph”

The auditor shall use the heading of “other matter paragraph” or other appropriate heading.

POINT TO BE NOTED If the auditor expects to include an

emphasis on matter paragraph or other matter paragraph in the auditors report then auditor shall

communicate with TCWG regarding this expectation and proposed wording in the paragraph

Examples of circumstances where the auditor may consider it necessary to include Emphasis of Matter Paragraph are: An uncertainty relating to future outcome of an exceptional

litigation or regulatory action. Early application (wherever permitted) of a new accounting

standard that has pervasive effect.

Including an emphasis of matter paragraphs in auditors report doesn’t affect the auditors opinion. Emphasis of matter paragraph is not substitute for either: Providing qualified, adverse or disclaiming the audit opinion Disclosure in the financial statements that the applicable

financial reporting frameworks requires management to make

Circumstances where Emphasis on Matter paragraph may be necessary

Circumstances in which Other Matter Paragraph may be necessary

Relevant to users understanding of auditIn the rare circumstances where the auditor is unable to resign from an engagement even though the possible effects of unable to obtain SAAE due to limitation imposed by management in Scope of the audit.

Relevant to users understanding of Auditors Responsibilities or Audit report. Law, regulation or generally accepted practice in the

jurisdiction may require or permit the auditor to report or elaborate on matters that provides further explanation of auditors responsibilities in audit report.

An other matter paragraph doesn’t deal with the situation where auditor has other reporting responsibilities that are in addition to auditors responsibility under the SAs to report the financial statement.

Reporting on more than one set of financial statementAn organization may prepare financial statements in accordance with general purpose framework (example: national framework) and another set of financial statement with another general purpose framework (example : IFRS) and engage auditor to report on both sets of financial statements

If the auditor has determined both sets of financial statements then the auditor can insert other matter paragraph and insert the facts.

Restriction on use of auditors reportFinancial report prepared for the specific purpose may be prepared in accordance with the intended users have determined that such general purpose financial information fulfill their needs.

Since the auditor report is based for specific users the auditor may restrict the circulation of report and should be used by intended users only.

Inclusion of Other Matter Paragraph in auditors report

Auditors are not allowed to disclose any other information prohibited by law, regulation or other standards. (example : Ethical standards)

When the other matter paragraph is included in report then auditor shall include it immediately after emphasis on matter paragraph, if any or opinion paragraph. The suitable heading “other matter paragraph” or any other suitable heading can be provided.

Thank YouDipendra Prasad Poudel

mailfordipendra@gmail.comInfodipendra.blogspot.in

17th April 2014