Orion Ltd.

Orion Ltd., a listed entity, is involved in a significant court case. The matter:

is appropriately disclosed in Note 32 of the financial statements;
is fundamental to users’ understanding of the financial statements;
required significant auditor attention because of the uncertainty involved; and
was determined by the auditor to be one of the matters of most significance in the audit.

The auditor is considering whether to present the matter as an Emphasis of Matter (EOM) paragraph or as a Key Audit Matter (KAM).

Which ONE of the following is the most appropriate conclusion?

A.

The matter should ordinarily be communicated as a KAM because it satisfies the KAM criteria; an EOM paragraph is not a substitute for communicating an individual matter that qualifies as a KAM.

B.

The matter should ordinarily be communicated through an EOM paragraph because its fundamental importance to users takes precedence over the KAM classification whenever the matter is adequately disclosed.

C.

The auditor may choose either a KAM or an EOM paragraph because both mechanisms communicate matters that are fundamental to users, provided the financial statements contain adequate disclosure of the matter.

D.

The matter should ordinarily be communicated through an EOM paragraph unless the auditor concludes that the litigation resulted in a modified opinion, in which case the KAM requirements would automatically become applicable.