There are four situations in which the auditor will depart from the form of report given above.
Matters that do not affect the auditor’s opinion
Emphasis of a matter
Matters that do affect the auditor’s opinion
Disclaimer of opinion
(a) Emphasis of Matter
An emphasis of matter is an extra paragraph inserted in the report to draw attention to a significant matter affecting the financial statements which is explained more fully in a note to the financial statements.
An emphasis of the matter paragraph should follow the opinion paragraph and will normally refer to the fact that the auditor’s opinion is not qualified.
(b) Going Concern
The auditor should modify the auditor’s report by adding a paragraph to highlight a matter regarding a going concern problem.
(c) Significant Uncertainty
The auditor should consider modifying the auditor’s report by adding a paragraph if there is a significant uncertainty (other than a going concern problem), the resolution of which is dependent upon future events and which may affect the finical statements. An uncertainty is a matter whose outcome depends on future actions or events not under the direct control of the entity but that may affect the financial statements.
An emphasis of matter paragraph relating to a pending lawsuit might take the following form:
‘Without qualifying our opinion we draw attention to Note X to the financial statements. The company is the defendant in a law suit alleging infringement of certain patent rights and claiming royalties and punitive damages. The company has field a counter action, and preliminary hearings and discovery proceedings on both actions are in progress. The ultimate outcome to the matter cannot presently be determined and no provision for any liability that may result has been made in the financial statements.
It is important to realize that an emphasis of matter does not affect the audit opinion; it merely draws attention to nay significant matters so that the reader is able to obtain a full understanding of the finical statements.