A8. Paragraphs A16–A17 provide further guidance on the placement of Emphasis of Matter paragraphs in particular circumstances.
Other Matter Paragraphs in the Auditor’s Report (Ref: Para. 10–11)
Circumstances in Which an Other Matter Paragraph May Be Necessary
Relevant to Users’ Understanding of the Audit
A9. SA 260 (Revised) requires the auditor to communicate with those charged with governance about the planned scope and timing of the audit, which includes 7 SA 560, paragraph 6. 8 SA 570 (Revised), paragraphs 22–23. communication about the significant risks identified by the auditor.9 Although matters relating to significant risks may be determined to be key audit matters, other planning and scoping matters (e.g., the planned scope of the audit, or the application of materiality in the context of the audit) are unlikely to be key audit matters because of how key audit matters are defined in SA 701. However, law or regulation may require the auditor to communicate about planning and scoping matters in the auditor’s report, or the auditor may consider it necessary to communicate about such matters in an Other Matter paragraph.
A10. In the rare circumstance where the auditor is unable to withdraw from an engagement even though the possible effect of an inability to obtain sufficient appropriate audit evidence due to a limitation on the scope of the audit imposed by management is pervasive,10 the auditor may consider it necessary to include an Other Matter paragraph in the auditor’s report to explain why it is not possible for the auditor to withdraw from the engagement. Relevant to Users’ Understanding of the Auditor’s Responsibilities or the
A11. Law, regulation or generally accepted practice may require or permit the auditor to elaborate on matters that provide further explanation of the auditor’s responsibilities in the audit of the financial statements or of the auditor’s report thereon. When the Other Matter section includes more than one matter that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report, it may be helpful to use different sub-headings for each matter.
A12. An Other Matter paragraph does not deal with circumstances where the auditor has other reporting responsibilities that are in addition to the auditor’s responsibility under the SAs (see Other Reporting Responsibilities section in SA 700 (Revised)11), or where the auditor has been asked to perform and report on additional specified procedures, or to express an opinion on specific matters.
Reporting on more than one set of financial statements
A13. An entity may prepare one set of financial statements in accordance with a general purpose framework (e.g., the national framework) and another set of financial statements in accordance with another general purpose framework (e.g., International Financial Reporting Standards), and engage the auditor to report on both sets of financial statements. If the auditor has determined that the 9 SA 260 (Revised), paragraph 15. 10 See paragraph 13(b)(ii) of SA 705 (Revised) for a discussion of this circumstance. 11 SA 700 (Revised), Forming an Opinion and Reporting on Financial Statements, paragraphs 43-
45. frameworks are acceptable in the respective circumstances, the auditor may include an Other Matter paragraph in the auditor’s report, referring to the fact that another set of financial statements has been prepared by the same entity in accordance with another general purpose framework and that the auditor has issued a report on those financial statements.
Restriction on distribution or use of the auditor’s report
A14. Financial statements prepared for a specific purpose may be prepared in accordance with a general purpose framework because the intended users have determined that such general purpose financial statements meet their financial information needs. Since the auditor’s report is intended for specific users, the auditor may consider it necessary in the circumstances to include an Other Matter paragraph, stating that the auditor’s report is intended solely for the intended users, and should not be distributed to or used by other parties.
Including an Other Matter Paragraph in the Auditor’s Report
A15. The content of an Other Matter paragraph reflects clearly that such other matter is not required to be presented and disclosed in the financial statements. An Other Matter paragraph does not include information that the auditor is prohibited from providing by law, regulation or other professional standards, for example, ethical standards relating to confidentiality of information. An Other Matter paragraph also does not include information that is required to be provided by management.
Placement of Emphasis of Matter Paragraphs and Other Matter
Paragraphs in the Auditor’s Report (Ref: Para. 9, 11)
A16. The placement of an Emphasis of Matter paragraph or Other Matter paragraph in the auditor’s report depends on the nature of the information to be communicated, and the auditor’s judgment as to the relative significance of such information to intended users compared to other elements required to be reported in accordance with SA 700 (Revised). For example:
Emphasis of Matter Paragraphs
When the Emphasis of Matter paragraph relates to the applicable financial reporting framework, including circumstances where the auditor determines that the financial reporting framework prescribed by law or regulation would otherwise be unacceptable,12 the auditor may consider it necessary to place the paragraph immediately following the Basis of Opinion section to provide appropriate context to the auditor’s opinion. 12 For example, as required by SA 210, Agreeing the Terms of Audit Engagements, paragraph 19 and SA 800, Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks, paragraph 14. When a Key Audit Matters section is presented in the auditor’s report, an Emphasis of Matter paragraph may be presented either directly before or after the Key Audit Matters section, based on the auditor’s judgment as to the relative significance of the information included in the Emphasis of Matter paragraph. The auditor may also add further context to the heading “Emphasis of Matter”, such as “Emphasis of Matter – Subsequent Event”, to differentiate the Emphasis of Matter paragraph from the individual matters described in the Key Audit Matters section.
When a Key Audit Matters section is presented in the auditor’s report and an Other Matter paragraph is also considered necessary, the auditor may add further context to the heading “Other Matter”, such as “Other Matter – Scope of the Audit”, to differentiate the Other Matter paragraph from the individual matters described in the Key Audit Matters section. When an Other Matter paragraph is included to draw users’ attention to a matter relating to Other Reporting Responsibilities addressed in the auditor’s report, the paragraph may be included in the Report on Other Legal and Regulatory Requirements section. When relevant to all the auditor’s responsibilities or users’ understanding of the auditor’s report, the Other Matter paragraph may be included as a separate section following the Report on the Audit of the Financial Statements and the Report on Other Legal and Regulatory Requirements.
A17. Appendix 3 is an illustration of the interaction between the Key Audit Matters section, an Emphasis of Matter paragraph and an Other Matter paragraph when all are presented in the auditor’s report. The illustrative report in Appendix 4 includes an Emphasis of Matter paragraph in an auditor’s report for an entity other than a listed entity that contains a qualified opinion and for which key audit matters have not been communicated.
Communication with Those Charged with Governance (Ref. Para. 12)
A18. The communication required by paragraph 12 enables those charged with governance to be made aware of the nature of any specific matters that the auditor intends to highlight in the auditor’s report, and provides them with an opportunity to obtain further clarification from the auditor where necessary. Where the inclusion of an Other Matter paragraph on a particular matter in the auditor’s report recurs on each successive engagement, the auditor may determine that it is unnecessary to repeat the communication on each engagement, unless otherwise required to do so by law or regulation.
List of SAs Containing Requirements for Emphasis of
This appendix identifies paragraphs in other SAs that require the auditor to include an Emphasis of Matter paragraph in the auditor’s report in certain circumstances. The list is not a substitute for considering the requirements and related application and other explanatory material in SAs. SA 210, Agreeing the Terms of Audit Engagements – paragraph 19(b). SA 560, Subsequent Events – paragraphs 12(b) and 16.
SA 800, Special Considerations—Audits of Financial Statements Prepared
in Accordance with Special Purpose Frameworks – paragraph 14.
List of SAs Containing Requirements for Other Matter
This appendix identifies paragraphs in other SAs that require the auditor to include an Other Matter paragraph in the auditor’s report in certain circumstances. The list is not a substitute for considering the requirements and related application and other explanatory material in SAs. SA 560, Subsequent Events – paragraphs 12(b) and 16.
Information—Corresponding
and Comparative Financial Statements – paragraphs 13–14, 16–17 and 19.
(Ref: Para. A17) Illustration of an Auditor’s Report that Includes a Key Audit Matters
Section, an Emphasis of Matter Paragraph, and an Other Matter
For purposes of this illustrative auditor’s report, the following circumstances are assumed: Audit of a complete set of financial statements of a listed company (registered under the companies Act, 2013) using a fair presentation framework. The audit is not a group audit. (i.e., SA 600 does not apply) The financial statements are prepared by management of the company in accordance with the Accounting Standards prescribed under section 133 of the Companies Act, 2013 (a general purpose framework). The terms of the audit engagement reflect the description of management’s responsibility for the financial statements in SA 210.
The auditor has concluded an unmodified (i.e., “clean”) opinion is
appropriate based on the audit evidence obtained. The relevant ethical requirements that apply to the audit are those of the ICAI’s Code of Ethics and the provisions of the Companies Act, 2013. Based on the audit evidence obtained, the auditor has concluded that a material uncertainty does not exist related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern in accordance with SA 570(Revised). Between the date of the financial statements and the date of the auditor’s report, there was a fire in the company’s production facilities, which was disclosed by the company as a subsequent event. In the auditor’s judgment, the matter is of such importance that it is fundamental to users’ understanding of the financial statements. The matter did not require significant auditor attention in the audit of the financial statements in the current period. Key audit matters have been communicated in accordance with SA 701. The auditor has obtained all of the other information prior to the date of the auditor's report and has not identified a material misstatement of the other information.
Corresponding figures are presented, and the prior period’s financial
statements were audited by a predecessor auditor. The auditor is not prohibited by law or regulation from referring to the predecessor auditor’s report on the corresponding figures and has decided to do so. Those responsible for oversight of the financial statements differ from those responsible for the preparation of the financial statements. In addition to the audit of the financial statements, the auditor has other reporting responsibilities required under the Companies Act, 2013.
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial Statements
We have audited the standalone financial statements of ABC Company Limited (“the Company”), which comprise the balance sheet as at March 31, 20X1, and the statement of Profit & Loss, (statement of changes in equity)13 and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information (in which are included the Returns for the year ended on that date audited by the branch auditors of the Company’s branches located at (location of branches))14. In our opinion, and to the best of our information and according to the explanations given to us the aforesaid financial statements, give the information required by the Companies Act, 2013 in the manner so required, and give a true and fair view, in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31st, 20X1 and its profit/loss, (changes in equity15) and its cash flows for the year ended on that date.
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under Section 143(10) of the Companies Act, 2013. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for 13 Where applicable. 14 Where applicable. 15 Where applicable. the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements as per the ICAI’s Code of Ethics and the provisions of the Companies Act, 2013, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
16 We draw attention to Note X of the financial statements, which describes the effects of a fire in the Company’s production facilities. Our opinion is not modified in respect of this matter.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. [Description of each key audit matter in accordance with SA 701.]
The financial statements of ABC Company Limited for the year ended March 31, 20X0, were audited by another auditor who expressed an unmodified opinion on those statements on June 15, 20X0. Other Information [or another title if appropriate such as “Information
Other than the Financial Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements in SA 720 (Revised) – see Illustration 1 in Appendix 2 of SA 720 (Revised).]
Responsibilities of Management and Those Charged with Governance for
the Financial Statements [Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700 (Revised).]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700 (Revised).] 16 As noted in paragraph A16, an Emphasis of Matter paragraph may be presented either directly before or after the Key Audit Matters section based on the auditor’s judgment as to the relative significance of the information included in the Emphasis of Matter paragraph.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700 (Revised).] While reporting under Section 143(3) of the Companies Act, 2013, the auditor is required to suitably reword the wordings given in the Illustration in SA 700(Revised) to meet the circumstances of the audit.
(Firm’s Registration No.)
(Name of the Member signing the Audit Report) (Designation17) (Membership No.) Place of Signature: Date: 17 Partner or Proprietor, as the case may be
Illustration of an Auditor’s Report Containing a Qualified Opinion
Due to a Departure from the Applicable Financial Reporting
Framework and that Includes an Emphasis of Matter Paragraph
For purposes of this illustrative auditor’s report, the following circumstances are assumed: Audit of a complete set of financial statements of an unlisted company (registered under the Companies Act, 2013) using a fair presentation framework. The audit is not a group audit (i.e. SA 600 does not apply) The financial statements are prepared by management of the company in accordance with the Accounting Standards prescribed under section 133 of the Companies Act, 2013 (a general purpose framework).
The terms of the audit engagement reflect the description of
management’s responsibility for the financial statements in SA 210. A departure from the applicable financial reporting framework resulted in a qualified opinion. The relevant ethical requirements that apply to the audit are the ICAI’s Code of Ethics and the provisions of the Companies Act, 2013. Based on the audit evidence obtained, the auditor has concluded that a material uncertainty does not exist related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern in accordance with SA 570(Revised). Between the date of the financial statements and the date of the auditor’s report, there was a fire in the company’s production facilities, which was disclosed by the company as a subsequent event. In the auditor’s judgment, the matter is of such importance that it is fundamental to users’ understanding of the financial statements. The matter did not require significant auditor attention in the audit of the financial statements in the current period. The auditor is not required, and has otherwise not decided, to communicate key audit matters in accordance with SA 701. The auditor has not obtained any other information prior to the date of the auditor’s report. Those responsible for oversight of the financial statements differ from those responsible for the preparation of the financial statements. In addition to the audit of the financial statements, the auditor has other reporting responsibilities required under the Companies Act, 2013.
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial Statements
We have audited the standalone financial statements of ABC Company Limited (“the Company”), which comprise the balance sheet as at March 31st, 20X1, and the statement of Profit and Loss, (statement of changes in equity)18 and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information (in which are included the Returns for the year ended on that date audited by the branch auditors of the Company’s branches located at (location of branches))2. In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion section of our report, the aforesaid financial statements give the information required by the Companies Act 2013 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India of the state of affairs of the Company as at March 31st, 20X1 and its profit/loss, (changes in equity19) and its cash flows for the year ended on that date.
Basis for Qualified Opinion
The Company’s short-term marketable securities are carried in the balance sheet at Rs. xxx. Management has not marked these securities to market but has instead stated them at cost, which constitutes a departure from the Accounting Standards prescribed under Section 133 of the Companies Act, 2013. The
Company’s records indicate that had management marked the marketable
securities to market, the Company would have recognized an unrealized loss of Rs. xxx in the statement of profit and loss for the year. The carrying amount of the securities in the balance sheet would have been reduced by the same amount at March 31, 20X1, and income tax, net income and shareholders’ equity would have been reduced by Rs. xxx, Rs. xxx and Rs. xxx, respectively. We conducted our audit in accordance with the Standards on Auditing (SAs) specified under Section 143(10) of the Companies Act 2013. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to 18 Where applicable. 19 Where applicable. our audit of the financial statements as per the Code of Ethics issued by ICAI and under the provisions of the Companies Act, 2013, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI’s Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Emphasis of Matter – Effects of a Fire
We draw attention to Note X of the financial statements, which describes the effects of a fire in the Company’s production facilities. Our opinion is not modified in respect of this matter.
Responsibilities of Management and Those Charged with Governance for
the Financial Statements [Reporting in accordance with SA 700(Revised)–see Illustration 3 in SA 700(Revised).]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700(Revised – see Illustration 3 in SA 700(Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) – see Illustration 3 in SA 700 (Revised).] While reporting under Section 143(3) of the Companies Act, 2013, the auditor is required to suitably reword the wordings given in the Illustration in SA 700(Revised) to meet the circumstances of the audit.
(Firm’s Registration No.)
(Name of the Member signing the Audit Report) (Designation20) (Membership No.) Place of Signature: Date: 20 Partner or Proprietor, as the case may be.
