We may occasionally come across a section in the auditors’ report on the Other Matter when reading through an audit report especially that of a public listed company.
The auditor uses the “Other Matter” section to draw the attention of the users of the financial statements to any matter or matters other than those already presented or disclosed in the financial statements.
The Other Matter is normally based upon the judgment of the auditor, deemed necessary and relevant to help the users of financial statements understand the audit, the auditors’ responsibilities, or the auditor’s report.
Requirement for Other Matter
There is a minimum requirement before the auditor can include a matter in the Other Matter paragraph. That is, any local laws and regulations do not prohibit the disclosure of such Other Matter.
The auditor will need to exercise judgment to determine if including such Other Matter is indeed necessary for users of financial statements to understand the audit, auditors’ responsibilities, or the auditors’ report.
The auditor shall also communicate his expectation of including the Other Matter paragraph in the auditors’ report with those charged with governance, such as the audit committee. This does not mean the auditor’s decision on including the Other Matter is subject to communication with those charged with governance. It is more of a requirement that those charged with governance are made aware in advance.
Format of the Other Matter
The Other Matter is not randomly included in the auditors’ report by the auditor. The auditor needs to follow a format as guided by local or international auditing standards. Generally, the Other Matter paragraph should immediately follow the audit opinion and emphasis of matter paragraphs in the auditors’ report.
However, if the Other Matter paragraph is about other reporting responsibilities, it may be disclosed elsewhere under Reporting on Other Legal and Other Regulatory Requirements.
The heading of the paragraph must be stated as “Other Matter,” but other appropriate headings may be used under certain circumstances. The content of the Other Matter paragraph should indicate that such Other Matter is not required to be presented and disclosed in the financial statements.
When is Other Matter required?
Other Matter may be required when these circumstances are present:
1) Relevant to users’ understanding of the audit
One example is when there is a situation that causes the auditor to be unable to resign or withdraw from an audit even when the auditor may not obtain sufficient appropriate audit evidence.
Such a situation could be caused by a certain limitation of scope on the audit imposed by the management. Such limitation of scope has a pervasive effect on the financial statements. The auditor may explain in the Other Matter paragraph why the auditor cannot resign or withdraw from the audit.
2) Relevant to users’ understanding of the auditor’s responsibilities or the auditor’s report
There may be instances where local laws, regulations, or generally accepted practices require or allow the auditor to explain the matter and provide a more detailed explanation of the auditors’ responsibility in the audit of the financial statements or the auditor’s report.
3) Reporting on more than one set of financial statements
Sometimes, a multinational company may prepare more than one set of financial statements, with one set according to its parent company’s accounting framework and another set according to the local accounting framework to comply with local statutory requirements.
Under such a circumstance, the same auditor is engaged to report on both sets of financial statements. The auditor can include an Other Matter paragraph in the auditors’ report to state that the company also prepares another set of financial statements in accordance with another accounting framework and that the auditor has issued a report on that set of financial statements as well. However, the auditor has first to ensure that both the frameworks applied are acceptable.
4) Restriction on distribution or use of the auditor’s report
The auditor is sometimes engaged to report on financial statements prepared for specific users, and a general purposed framework is applied. This is because the users of such financial statements have determined that such general-purpose financial statements are more relevant for their reporting purposes.
As the auditors’ report is intended for these specific users, the auditor may consider stating that the auditors’ report is intended solely for these users and should not be distributed to or used by other parties through the Other Matter paragraph.
Things to take note of when including Other Matter
It is to be noted that the Other Matter paragraph is not applicable for a situation where the auditor has other reporting responsibilities that are in addition to the auditor’s responsibility under any local or international auditing standards to report on the financial statements.
The Other Matter paragraph is also not to be used when the auditor is engaged to perform and report on additional specific procedures or express an opinion on specific matters.
The Other Matter paragraph should not include information that is prohibited by law, regulations, or any other professional standards from being disclosed. For example, sensitive information that is deemed confidential under the ethical standards should not be disclosed under the Other Matter paragraph in the auditors’ report.
Lastly, the Other Matter paragraph should also exclude information required by the management, as such information should be disclosed in the financial statements based on the applicable accounting framework or regulatory requirements.
The Other Matter paragraph should only include matters that are related to the audit, the auditors’ responsibilities, or the auditor’s report.
The Other Matter is very useful for the auditor to draw the attention of the users of the financial statements to additional information regarding the audit, the auditors’ responsibilities, or the auditor’s report.
This essentially helps the users of the financial statements to understand better the audit, the auditors’ responsibilities, or the auditor’s report and allows them to make the right judgment for their economic decisions.