Circumstances where an "emphasis of a matter" paragraph may be necessary include
A)an uncertainty relating to the prior outcome of exceptional litigation or regulatory action
B)early application (where permitted)of a new accounting standard that has a pervasive effect on the financial statements after of its effective date
C)a major catastrophe that has had,or continues to have,a significant effect on the entity's financial position
D)insignificant transactions with related parties
E)unusually important subsequent events
F)both A and B
G)both B and D
H)Both C and E

Question

Quizplus · Accepted Answer

An "emphasis of matter" paragraph may be necessary in the following circumstances:

C) A major catastrophe that has had or continues to have a significant effect on the entity's financial position
E) Unusually important subsequent events

Both of these circumstances are important enough to require an emphasis of matter paragraph to draw attention to the potential impact on the financial statements.

Choice A may also require an emphasis of matter paragraph, but it is not given as an option that stands alone. Choice B may be relevant in some cases, but not all applications of a new accounting standard will require an emphasis of matter paragraph. Choice D is incorrect because transactions with related parties may be significant and require disclosure, but not necessarily an emphasis of matter paragraph.

Circumstances Where an "Emphasis of a Matter" Paragraph May Be