An auditor's report on an entity's financial statements includes an Other-Matter paragraph. Which of the following situations would most likely warrant the inclusion of such a paragraph?
- AThe financial statements are prepared in accordance with a special purpose framework.
- BA significant uncertainty relating to the future outcome of a litigation, adequately disclosed in the financial statements.
- CA material misstatement in the financial statements that is not pervasive.
- DA restriction on the scope of the auditor's work imposed by management, which is pervasive.
Show answer & explanationAnswer & explanation
Correct answer: B. A significant uncertainty relating to the future outcome of a litigation, adequately disclosed in the financial statements.
An Other-Matter paragraph is used to draw users' attention to a matter other than those presented or disclosed in the financial statements that, in the auditor's judgment, is relevant to users' understanding of the audit, the auditor’s responsibilities, or the auditor’s report. While significant uncertainties are often disclosed in the notes, an auditor might include an Other-Matter paragraph if they deem it particularly important for the user's understanding of the report, especially if it relates to a going concern or other fundamental uncertainty.
Why the other options are wrong
- A. Financial statements prepared under an SPF require an Emphasis-of-Matter paragraph, not an Other-Matter paragraph, to highlight the non-GAAP basis.
- C. A material misstatement that is not pervasive would lead to a qualified opinion, not an Other-Matter paragraph.
- D. A pervasive scope limitation would result in a disclaimer of opinion, not an Other-Matter paragraph.
Other-Matter Paragraph Use
An Other-Matter paragraph highlights a matter other than those presented or disclosed in the financial statements that is relevant to users' understanding of the audit, auditor's responsibilities, or the audit report.
- Relates to the audit or report itself
- Not required to be presented/disclosed in F/S
- Can include prior period audit or other reporting responsibilities
Memory trick: Emphasis is IN the F/S, Other is OUTSIDE the F/S.