Emphasis-of-matter and other-matter paragraphs

Definition

Under AU-C 706, an emphasis-of-matter paragraph refers to a matter appropriately presented or disclosed in the financial statements that is fundamental to users' understanding. An other-matter paragraph refers to a matter not presented or disclosed in the statements that is relevant to users' understanding of the audit, the auditor's responsibilities, or the report. Each goes in its own headed paragraph or section. An emphasis-of-matter paragraph states that the opinion is not modified with respect to the matter.

Why it matters in an audit or review

Auditors use these paragraphs sparingly because over-use dilutes them. Typical emphasis matters include an uncertainty about the outcome of unusual litigation or regulatory action, early application of a new accounting standard with a pervasive effect, or a major catastrophe that significantly affects the entity. Typical other matters include prior-period statements audited by another auditor, or a restriction on use of the report.

Example

Illustrative: a company discloses a wildfire that destroyed its main plant after year end. The auditor adds an emphasis-of-matter paragraph referring to the note, and states the opinion is not modified.

Common mistakes

Using an emphasis paragraph as a substitute for a qualified opinion. If a disclosure is missing or wrong, the opinion must change.

FAQ

How is a going concern uncertainty reported?

When substantial doubt remains and disclosure is adequate, AU-C 570 (as amended by SAS 134) calls for a separate section of the report on the substantial doubt. The opinion is not modified for it.

Sources

• AICPA, AU-C Section 706, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor's Report
• AICPA, AU-C Section 570, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern (as amended by SAS 134)
• AICPA, AU-C Section 705, Modifications to the Opinion in the Independent Auditor's Report