What is Emphasis of Matter paragraph and when is it used?

Emphasis of matter paragraph, as the name suggests, is a paragraph that is included by the auditor in his report (audit report) to direct the attention of users of financial statements to a matter that has been discussed appropriately in the financial statements (usually a disclosure). The reason why auditor invites the attention of users is that in auditor’s judgment the matter is of such importance that users should know about this in order to completely understand the financial statements.

Emphasis of Matter paragraph (EMP) has been defined in International Standards on Auditing (ISAs) as follows:

A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements.

From the above definition we can understand that:

  • EMP is basically a reference to a matter or a disclosure in the financial statements
  • by including an additional paragraph auditor has highlighted it so that it is considered by the user of financial statements
  • EMP will always be about the matters already presented/disclosed appropriately in the financial statements
  • In the auditor’s judgment the matter or disclosure so highlighted is so important that if it is missed then users may be mislead or may end up not understanding the financial statements accurately.

Emphasis of Matter paragraph may be included in auditor’s report when:

  • Auditor believes that there is a need to draw user’s attention to significant uncertainty surrounding accounting estimates
  • In case new or amended audit report has been issued after the discovery of subsequent events.
  • In case material uncertainty exists surrounding the use of going concern assumption but the same has been disclosed to the satisfaction of the auditor in the financial statements.
  • In case financial statements have been prepared under two financial reporting frameworks then auditor shall include Emphasis of Matter paragraph pointing to the disclosure in respect of extent of compliance of framework
  • In case of early application of accounting standard that has pervasive effect on financial statements i.e. new accounting standard has been followed and applied before its effective date.
  • In case auditor discovered that prior period financial statements contain material misstatements and also amended audit report has not been issued but the corresponding figures have been restated and appropriate disclosures have been made in the current period financial statements.
  • In case financial statements are prepared under special purpose framework
  • An entity is facing major catastrophe and its  effects are expected to propagate to future periods and it is and will significantly affect the financial position of entity.
It is up to auditor to decide whether Emphasis of Matter paragraph is necessary in the situation or not by using professional judgment. Also students are advised to consult relevant standards to understand the situation and circumstances in detail in which Emphasis of Matter paragraph is used and related provisions.


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