Final answer:
The term "explanatory paragraph" in the AICPA auditing standards was replaced with "emphasis-of-matter paragraph." This paragraph is used to provide important information that does not affect the audit opinion but is crucial for understanding the financial statements or the audit itself.
Step-by-step explanation:
The term "explanatory paragraph" in the AICPA auditing standards was replaced with the emphasis-of-matter paragraph. The new term more accurately describes paragraphs in the auditor’s report that do not affect the auditor’s opinion but are important for the user’s understanding of the financial statements or the audit. The emphasis-of-matter paragraph can be used to draw attention to matters such as significant events that occur after the balance sheet date or to explain an auditor's rationale when there is an uncertainty related to going concern.
When constructing any paragraph, but especially an emphasis-of-matter paragraph, certain elements should be included:
- Topic Sentence: Introduces the main idea of the paragraph.
- Claim: Asserts a particular point that supports the main idea.
- Evidence: Provides relevant data or references to support the claim.
- Analysis: Offers an examination of how the evidence supports the claim and connects with overall arguments.
A well-crafted emphasis-of-matter paragraph should follow a logical structure that helps the reader understand the significance of the information presented and its relation to the audited financial statements.