Reporting Emphasis of Matter (EOM) concerning The Coronavirus
The COVID-19 pandemic has changed the way a lot of things are done. This includes compiling auditing reports. Auditors may now have to add an EOM in their reports. For people who are not sure about how to do this, the Assurance & Audit Faculty has released a comprehensive guide to explain the process.
The pandemic has created an environment that is filled with uncertainties. Due to this, auditors are more likely to have to include an EOM in their reports. Financial statements that have some crucial matter in them must be highlighted in order to capture the reader’s attention.
An EOM is a paragraph that highlights a factor or matter in a financial statements that an auditor believes to be crucial. An EOM does not have any impact on the opinion of an audit.
It should be noted that EOMs have not become compulsory because of the pandemic. The uncertain environment created by the pandemic has increased the chances of an auditor being compelled to add an EOM. However, this does not mean that every audit report will now come with an EOM. An auditor only needs to add one when they feel that something “fundamental” needs to be brought to light.
For an auditor, recognizing something “fundamental” is a challenge in itself. Should a report have an EOM, auditors will need to justify it’s addition. Also, auditors must keep in mind that over use of EOMs could end up affecting their report’s ability to communicate on key matters.
Any matter that has been “appropriately” disclosed in a financial statements can be highlighted in an EOM paragraph. In case such matters have not been disclosed appropriately, other measures will be taken in the report. Auditors should keep in mind that EOMs are not used to highlight uncertainties related to a business’ going concern now. Such matters are addressed in another part of a report.
The complete guide released on EOMs in relation to COVID-19 talks about certain situations in which the pandemic’s effects may compel auditors to use an EOM. These situations include:
- External parties, like property surveying teams, include clauses that highlight problems with material valuation.
- Financial statements that may have been compiled on some other basis rather than ongoing concern.
- Uncertainty about litigation results.
- An event disclosure referencing the coronavirus has been added.
Bear in mind that the above mentioned situations alone do not warrant the use of an EOM. Any auditor who does include an EOM in their report should provide a detailed explanation of why they felt that the said matter needed to be highlighted.
For people who are unsure about where and what to highlight, they can refer to a flowchart provided in the guide. It provides a visual aid on how to consider the use of an EOM and how should it be structured. Auditors can also figure out how to relate their EOM with KAMs.
The full guide provides a very thorough explanation of the entire topic.