An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material related party transaction that was properly authorized and disclosed. The auditor wants to draw attention to this transaction in the audit report. What should the auditor do?

Answer options:

Issue a qualified opinion.

Include an emphasis-of-matter paragraph.

Include an other-matter paragraph.

Do nothing, as the transaction is disclosed.

How to approach this question

Emphasis-of-Matter: Used for 'Hey, look at this!' regarding something correctly disclosed in the notes (Related Parties, Subsequent Events, Uncertainty).

Full Answer

B.Include an emphasis-of-matter paragraph.✓ Correct

AU-C 706 allows the auditor to include an emphasis-of-matter paragraph to draw users' attention to a matter appropriately presented or disclosed in the financial statements that is of such importance that it is fundamental to users' understanding. Significant related party transactions are a common example.

Common mistakes

Confusing Emphasis (In the notes) with Other-Matter (Not in the notes).

Question 72 All questions Question 74

Practice the full CPA AUD Practice Exam 2

78 questions · hints · full answers · grading

More questions from this exam

Q01An auditor is performing an audit of a nonissuer's financial statements. During the engagement, t...Hard Q02A CPA firm is auditing the financial statements of an issuer, TechGlobal Inc. The lead audit part...Hard Q03An auditor is conducting an audit of a nonissuer in accordance with GAO Government Auditing Stand...Hard Q04During the audit of a nonissuer, the auditor identifies a significant risk of fraud related to re...Hard Q05An auditor is accepting an engagement to audit the financial statements of a new nonissuer client...Hard

View all 78 questions →