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002 – Emphasis of Matter paragraph for companies with capital deficiency – Part I, 3.B(iv)

Bulletin No.


Subject Matter



Feb. 16, 2012

SRC Rule 68,  as amended (2011)

Emphasis of Matter paragraph for companies with capital deficiency - Part I, 3.B(iv)

Request for Additional Ground for Exemption


If, other than those specific exemptions provided under subpar. (viii) items (a) to (c) of Part I, par. 3.B(iv), the auditor believes that the audit report on a company with capital deficiency does not warrant an emphasis matter paragraph, a confirmation must be obtained from the Commission through the submission of a position paper.


A determination will be made by the Commission whether the circumstance/s described in the position paper will qualify under item (d) of the exemption list [i.e., such other cases which the Commission may consider as valid ground for considering the company as a going concern].


For those availing of the exemption based on items (a) to (c) or pursuant to an additional exemption granted by the Commission, the notes to the financial statements should include a disclosure of the basis for the exemption.


Wordings of the Emphasis of Matter paragraph


The external auditor of a company  which has incurred a capital deficiency, shall provide in the audit report an emphasis paragraph indicating the following information:


(a)     The fact that the company has incurred a capital deficiency that  raises an issue on its going concern status;

(b)     A brief discussion of a concrete plan of the company to address the capital deficiency and reference to the note to financial statements that provides a complete disclosure of the said plan;

(c)    A statement that the auditor conducted sufficient audit procedures to verify the validity of the aforementioned plan.


Under PSA 570, external auditors are required to perform additional procedures when materiality uncertainty exists as to the ability of the company to continue as a going concern. Thus, in lieu of the statement under item (c) above, the following provisions consistent with PSA 570 provisions, may be indicated: that the auditor performed audit procedures to evaluate management’s plans for such future actions as to likelihood to improve the situation and as to feasibility under the circumstances.