Circumstances requiring modifications to, or departures from, an unqualified auditor's opinion are described, together with appropriate guidance, in AU-C section 705, "Modifications to the Opinion in the Independent Auditor's Report," for non-SEC entities, including governments, and in Auditing Standard [AS] 3105, Departures from Unqualified Opinions and Other Reporting Circumstances, for SEC issuers and other entities for which an auditor has been engaged to audit and report based on PCAOB standards. Such modifications include qualified opinions, adverse opinions [which are extremely rare], and disclaimers of opinion [which are auditor assertions that an opinion cannot be expressed]. Depending on the nature, magnitude, and pervasiveness of the potential effects of the matters in question, as well as their significance to the financial statements, qualified opinions or disclaimers often result from scope limitations or restrictions that may be imposed by clients or by circumstances that preclude the auditor from forming an unqualified opinion.
This article, however, is primarily about matters that may affect an auditor's report without affecting the opinion. Such matters may result in additions to a standard audit report of one of two different types: 1] "emphasis-of-matter" paragraphs that are considered necessary to draw users' attention because the matter is of such importance that it is fundamental to users' understanding of the financial statements, and 2] "other-matted" [referred to in PCAOB standards as "explanatory"] paragraphs. Some emphasis-of-matter and other-matter/explanatory paragraphs are required by the applicable auditing standards, and some are included based solely on auditor's discretion. Emphasis-of-matter paragraphs report only matters that are appropriately presented or disclosed in the financial statements and are of such importance to be considered fundamental to users' understanding of the financial statements. Other-matter paragraphs report matters considered relevant to users' understanding of the audit, the auditor's responsibilities, or the auditor's report other than matters that are appropriately presented or disclosed in the financial statements.
Although these matters are described, together with appropriate guidance, in AU-C section 706, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor's Report, for reports on financial statements of non-SEC entities, including governments, and in AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, for reports on financial statements of SEC issuers and other entities for which the auditor has been engaged to report based on PCAOB standards, the...
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