An Emphasis of Matter (EOM) paragraph and an Other Matter (OM) paragraph can both appear in an auditor's report, but they serve different purposes. Revised SA 706 draws a clear line: an EOM points users to a matter already appropriately presented or disclosed in the financial statements that is fundamental to understanding those statements, while an OM deals with a matter outside the financial statements that is relevant to understanding the audit, the auditor's responsibilities or the auditor's report.
ICAI's current auditing-standards repository lists Revised SA 706 among the 700-series reporting standards. Auditors can also refer to the official SA 706 (Revised) text and ICAI's Implementation Guide on Reporting Standards. The guide's ICAI landing page provides a reader-friendly route to the official publication.
Emphasis of Matter vs Other Matter: the core distinction
- Emphasis of Matter: the matter is already appropriately presented or disclosed in the financial statements, and the auditor considers it so important that it is fundamental to users' understanding of those statements.
- Other Matter: the matter is not presented or disclosed in the financial statements, but it is relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report.
This distinction prevents a common drafting error: using an EOM to compensate for an inadequate financial-statement note. If a required material disclosure is missing or materially misstated, the auditor must first consider the implications for the audit opinion under SA 705 rather than trying to cure the problem with an EOM.
When should an Emphasis of Matter paragraph be used?
An EOM is considered when a matter has been properly presented or disclosed and, in the auditor's judgment, is of such importance that it is fundamental to users' understanding of the financial statements. The matter should not require a modified opinion merely because it is being emphasised. Where SA 701 applies, a matter determined to be a Key Audit Matter is communicated as a KAM rather than being re-labelled as an EOM.
Possible circumstances can include an unusually important subsequent event that has been properly disclosed or a major catastrophe with a significant effect on the entity's financial position where the disclosure is adequate. These situations do not automatically require EOM; the auditor still applies professional judgment to the facts and significance to users.
What should the EOM section contain?
When an EOM is included, the auditor uses a separate section with an appropriate heading containing the words Emphasis of Matter. The paragraph identifies the matter, clearly refers to the relevant disclosure in the financial statements, and indicates that the auditor's opinion is not modified in respect of that matter.
When should an Other Matter paragraph be used?
An OM is used for a matter outside the financial statements that is relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report, provided law or regulation does not prohibit the communication. It should not be used to insert information that management itself is required to provide in the financial statements.
OM reporting may be relevant to a reporting circumstance, the scope or use of the auditor's report, or another matter about the audit that users need to understand. The exact treatment depends on the engagement and other applicable Standards on Auditing, because some standards specifically require or permit Other Matter reporting.
Three questions before choosing EOM or OM
- Is the matter in the financial statements? If properly presented or disclosed there, EOM may be considered. If it is outside the statements and relates to the audit, auditor responsibilities or report, OM may be relevant.
- Does the matter affect the audit opinion? If the financial statements contain a material misstatement or sufficient appropriate audit evidence cannot be obtained, assess SA 705 first. EOM and OM are not substitutes for a required modified opinion.
- Is another reporting section specifically required? A Key Audit Matter is dealt with under SA 701. A material uncertainty related to going concern is reported under SA 570's dedicated requirements, not merely as an EOM.
Worked example: disclosed litigation
Assume a company is involved in exceptional litigation. Management has appropriately recognised or disclosed the matter under the applicable financial reporting framework, the auditor has obtained sufficient appropriate audit evidence, and no modification of the opinion is required. The litigation is unusually significant and, in the auditor's judgment, fundamental to users' understanding of the financial statements.
An EOM may then be appropriate: it would refer users to the relevant note and state that the opinion is not modified in respect of the matter. If management had instead omitted a material disclosure required by the reporting framework, the solution would not be EOM; the auditor would evaluate the misstatement and its effect on the opinion.
Interaction with Key Audit Matters and going concern
Revised SA 706 explains the relationship between EOM and Key Audit Matters. When SA 701 applies and a matter has been determined to be a KAM, it is communicated in the KAM section rather than using EOM as a substitute.
Going concern has its own reporting architecture. ICAI's implementation guide notes that the revised reporting standards removed material uncertainties related to going concern from EOM reporting because SA 570 (Revised) contains specific reporting requirements. Audit teams should therefore identify the controlling standard before drafting the report.
Audit completion checklist
- Confirm whether the matter is inside or outside the financial statements.
- Check that any financial-statement disclosure relied upon is adequate.
- Determine whether a modified opinion is required under SA 705 before considering SA 706.
- Check whether SA 701 requires communication as a Key Audit Matter.
- Check whether another SA, such as SA 570, has a dedicated reporting requirement.
- For EOM, identify the exact note or disclosure to which the report will refer.
- For OM, confirm relevance to users' understanding of the audit, auditor responsibilities or report and that communication is not prohibited.
- Communicate with those charged with governance about the intention to include an EOM or OM paragraph and the proposed wording, as required by SA 706.
- Ensure the heading, placement and wording are consistent with the current standard and the rest of the auditor's report.
Common mistakes to avoid
- Using EOM to avoid modifying an opinion when a material misstatement exists.
- Using OM for information management should have disclosed in the financial statements.
- Repeating a Key Audit Matter as an EOM without considering SA 701.
- Reporting a material going-concern uncertainty as a routine EOM instead of applying SA 570.
Practical takeaway
Start with classification, not wording. If the matter is properly disclosed in the financial statements and is fundamental to understanding them, consider EOM. If it sits outside the financial statements but is relevant to understanding the audit, the auditor's responsibilities or the report, consider OM. Before using either, rule out a required opinion modification, a Key Audit Matter or another standard-specific reporting section.
