An auditor is preparing the audit report for a nonissuer. The auditor decides to emphasize that the entity has significant related party transactions. Which of the following is the correct presentation?

Answer options:

Include an Other-Matter paragraph describing the transactions.

Include an Emphasis-of-Matter paragraph describing the transactions and referencing the note disclosure.

Modify the opinion to a Qualified Opinion.

Include the discussion in the 'Basis for Opinion' section.

How to approach this question

Emphasis-of-Matter = Look at this Note! (Inside the statements). Other-Matter = Look at this other thing! (Outside the statements).

Full Answer

B.Include an Emphasis-of-Matter paragraph describing the transactions and referencing the note disclosure.✓ Correct

AU-C 706 states that an Emphasis-of-Matter paragraph is used to draw users' attention to a matter 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 valid use case.

Common mistakes

Confusing Emphasis-of-Matter with Other-Matter.

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