An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph:
a. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."
b. Violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements.
c. Is considered an "except for" qualification of the opinion.
d. Is appropriate and would not negate the unmodified opinion.
Answer:D
Choice "d" is correct. This is an emphasis-of-matter paragraph and should be added to an otherwise unmodified opinion in this case.
Choice "c" is incorrect. An "except for" qualification is used for a scope limitation or a departure from GAAP, but not for emphasis of a matter.
Choice "b" is incorrect. The auditor may emphasize a matter even if it is included in the footnotes.
Choice "a" is incorrect. A phrase such as "with the foregoing explanation" should not be used in an unmodified opinion.