ACCA Audit and Assurance (F8) Practice Exam

Under what circumstance might an emphasis of matter be used?

1. When there is no significant uncertainty

2. When there are financial statements that are misleading

3. When there is uncertainty related to litigation or regulation

4. When accounting standards have been properly applied

The correct answer is: When there is uncertainty related to litigation or regulation

An emphasis of matter paragraph in an audit report is used to draw attention to a specific issue that is deemed to be significant for the reader's understanding of the financial statements, without modifying the audit opinion. The correct choice reflects situations where there is uncertainty, particularly relating to litigation or regulatory matters that could impact the financial position or performance of the entity. Although these uncertainties might be disclosed in the notes to the financial statements, emphasizing them in the audit report serves to highlight their potential impact on the financial statements, ensuring that users of the report are adequately informed. This aligns with the guidelines in auditing standards which suggest that when there is a significant uncertainty, particularly one that could affect the financial results or disclosures, the auditor should make this clear to enhance transparency and the understanding of the users. In such cases, the emphasis helps users of the financial statements appreciate the degree of risk or uncertainty involved. Other options do not fit the criteria for an emphasis of matter. For example, when there is no significant uncertainty or when accounting standards have been properly applied, the financial statements have met the required guidelines completely and thus do not necessitate additional emphasis in the report. Furthermore, misleading financial statements would typically lead to a modification of the audit opinion rather than just an emphasis of matter