Final answer:
An emphasis-of-matter paragraph is when an auditor includes an additional paragraph in an unmodified audit report to highlight an issue that is relevant to understanding the audit, without altering the auditor’s opinion.
Step-by-step explanation:
An emphasis-of-matter paragraph refers to when an auditor issues an unmodified opinion but may include an additional paragraph in the report to draw attention to important information. This does not affect the auditor’s opinion on the financial statements as a whole. Instead, the emphasis-of-matter paragraph is intended to highlight an issue that is relevant to a better understanding of the audit. It could be related to a significant event or transaction that has taken place or to a condition that may affect the entity’s ability to continue as a going concern. However, it is important to note that this use of the emphasis-of-matter paragraph is separate from situations where an auditor might issue a disclaimer of opinion due to a scope limitation or when making inquiries of a current or prior auditor regarding past audit work.