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An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph

a. Is considered an except for qualification of the opinion.
b. Violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements.
c. Necessitates a revision of the opinion paragraph to include the phrase with the foregoing explanation.
d. Is appropriate and would not negate the unqualified/unmodified opinion.

1 Answer

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Final answer:

An auditor's inclusion of a separate paragraph to emphasize significant transactions with related parties in an unmodified report is known as an 'emphasis of matter' paragraph. This action is appropriate according to generally accepted auditing standards and does not affect the unqualified/unmodified nature of the audit opinion. The correct answer to the question is option d.

Step-by-step explanation:

The question at hand is addressing the appropriateness of an auditor’s action in including a separate paragraph in an otherwise unmodified audit report to emphasize significant transactions with related parties. This practice is commonly related to auditing standards and report structuring.

An auditor may choose to draw attention to a matter that is appropriately presented or disclosed in the financial statements but is of such importance that it is fundamental to users’ understanding of the financial statements. This is known as an “emphasis of matter” paragraph. According to generally accepted auditing standards, the inclusion of an emphasis of matter paragraph does not modify the opinion, hence it does not constitute an 'except for' qualification (option a) nor does it require revision of the opinion paragraph as mentioned in option c.

Furthermore, adding an emphasis of matter paragraph does not violate generally accepted auditing standards even if the information is already disclosed in the footnotes (option b). The objective is to enhance the users' understanding of the financial statements where the auditor deems it necessary due to the significance of the noted information. Therefore, the inclusion of such a paragraph is appropriate and does not negate the unqualified/unmodified opinion given by the auditor (option d).

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