Advanced Audit and Assurance (International) · Auditor's reports

ISA 706 Emphasis of Matter and Other Matter Paragraphs

Updated 11 October 2026 · Fact-checked

An Emphasis of Matter paragraph draws users to a matter already properly presented or disclosed in the financial statements that is fundamental to their understanding. An Other Matter paragraph refers to a matter not presented or disclosed that is relevant to understanding the audit or report. Neither modifies the opinion.

Understand Emphasis of Matter and Other Matter Paragraphs

Sometimes the opinion is clean, but the auditor still wants readers to look at something. ISA 706 (Revised) gives two tools for this. Both sit in the auditor's report as separate paragraphs. Neither changes the opinion.

An Emphasis of Matter (EoM) paragraph points to a matter that is already appropriately presented or disclosed in the financial statements. The matter must be fundamental to users' understanding of the statements. You are not adding information. You are pointing at it. Typical examples are a major uncertainty about the outcome of litigation, a significant subsequent event, or early application of a new standard with a pervasive effect. Another is a catastrophe that has had a significant effect on the entity's financial position.

An Other Matter (OM) paragraph points to a matter that is not presented or disclosed in the financial statements but is relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report. Examples are unconsolidated financial statements also prepared by the entity, a restriction on the distribution or use of the report, or a reference to a prior-period report that was modified and is still relevant to users. An OM is not used for a matter that management must present or disclose, or that the ISAs require to be reported elsewhere in the report.

The key difference from a Key Audit Matter (KAM) is purpose. KAMs are matters of most significance in the audit, chosen from matters communicated with those charged with governance. They are for listed entities, or where required or chosen. EoM and OM paragraphs are not a substitute for a KAM. An EoM does not replace a modified opinion either. If the disclosure is missing or wrong, you need a qualified or adverse opinion under ISA 705, not an EoM.

The going concern link matters. If a material uncertainty exists and is adequately disclosed, ISA 570 requires a separate section headed Material Uncertainty Related to Going Concern, not an EoM. If the uncertainty is not adequately disclosed, the opinion is modified.

Key rules to remember

Emphasis of Matter test: Matter already disclosed in the financial statements + fundamental to users' understanding → EoM paragraph; Both conditions must hold. The paragraph refers to the disclosure and states the opinion is not modified in respect of the matter.
Other Matter test: Matter not disclosed in the financial statements + relevant to understanding the audit, auditor's responsibilities or report → OM paragraph; Not for matters that law or regulation, or another ISA, requires to be dealt with elsewhere, such as management's disclosure.
Placement and heading: EoM: heading 'Emphasis of Matter' placed in a separate section; OM: heading 'Other Matter' placed in a separate section; Place the paragraph in a separate section with a suitable heading. Where it goes depends on how relevant it is to users. Use the heading and the wording to show the opinion is not modified in respect of the matter.
Effect on the opinion: EoM or OM paragraph → opinion unchanged; Missing or misstated disclosure → modified opinion under ISA 705, not an EoM.
Communication with TCWG: Expect to include an EoM or OM paragraph → tell those charged with governance before issuing the report; Give them a chance to understand the proposed wording and the reason for it.

How to solve Emphasis of Matter and Other Matter Paragraphs questions

Use this method for any scenario that asks whether to add a paragraph, which one, or what it should say.

1Identify the matter and check whether it is material to the financial statements and the opinion.
2Check the disclosure. Is it missing or inadequate? If yes, consider a modified opinion under ISA 705 first.
3If the disclosure is adequate and the matter is fundamental to users' understanding, choose an Emphasis of Matter paragraph.
4If the matter is not in the financial statements but relevant to understanding the audit, responsibilities or report, choose an Other Matter paragraph.
5Rule out alternatives: a going concern material uncertainty section, a KAM, or a required statutory disclosure.
6Draft the wording. Refer to the note in the financial statements for an EoM. State clearly that the opinion is not modified in respect of the matter.
7Place it in a separate section with a clear heading, and tell those charged with governance about the intended paragraph.
8Link the answer to the scenario. Use the facts and numbers given, and show professional judgement.

Quickest way: Two-question filter

When to use it: Use it when time is short and the scenario mentions a matter that the auditor 'wants to highlight'.

Ask: is it disclosed in the financial statements? If not adequately, think modification first.
If disclosed and fundamental, name it as EoM and cite the note.
If not disclosed and relevant to the audit or the report, name it as OM.
Add one line: opinion not modified in respect of this matter.
Add one line: discuss with those charged with governance.

Common mistakes in Emphasis of Matter and Other Matter Paragraphs

Using an EoM to cover an inadequate or missing disclosure.
Students see a disclosure issue and want a softer outcome than a modified opinion.
Fix: An EoM only works if the disclosure is adequate. If it is not, the opinion is qualified or adverse under ISA 705.
Treating an EoM as a KAM or a KAM as a replacement for an EoM.
Both are extra paragraphs that attract attention to a matter.
Fix: A KAM is a matter of most significance in the audit. An EoM is a disclosed matter fundamental to understanding. They have different purposes and can both appear.
Putting a matter in an OM paragraph when it should be disclosed by management.
The auditor feels a need to say something, so students offer an OM.
Fix: Where management should disclose the matter, ask management to disclose it. Failing that, consider a modified opinion.
Using an EoM for a going concern material uncertainty that is properly disclosed.
Older material used an EoM for this, and some students still recall it.
Fix: Use the separate section headed Material Uncertainty Related to Going Concern under ISA 570.
Forgetting to say the opinion is not modified.
Students focus on what the paragraph describes and not on its effect.
Fix: Always include a sentence that the opinion is not modified in respect of the matter and refer to the note.
Overusing EoMs for routine matters.
Students think more highlights show more caution.
Fix: Use an EoM only for matters fundamental to understanding. Overuse reduces its impact.

Worked examples

Example 1

Delta Co, a manufacturer, is defending a major legal claim. The outcome is uncertain. Note 18 to the financial statements discloses the nature of the claim, the uncertainty and the possible financial effect, and the auditor is satisfied the disclosure is adequate. Advise on the audit report.

Show the solution

The matter is a significant uncertainty about a legal claim and is likely to be fundamental to users' understanding.
The disclosure in Note 18 is adequate, so there is no reason to modify the opinion under ISA 705.
A matter already disclosed and fundamental points to an Emphasis of Matter paragraph.
The paragraph should have a heading Emphasis of Matter, refer to Note 18 and describe the matter briefly.
It should state that the opinion is not modified in respect of this matter.
Discuss the intended paragraph with those charged with governance before issuing the report.
Consider whether the claim is also a KAM, if KAMs are reported. This would be a separate section.

Answer: Include an Emphasis of Matter paragraph referring to Note 18, state that the opinion is not modified in respect of the matter, and communicate the wording to those charged with governance. The opinion stays unmodified because the disclosure is adequate.

Example 2

Last year's audit report on Sigma Co was qualified because of an inventory limitation. The prior-year matter has not been resolved, and it is still relevant to the current-period figures and the comparatives. Advise on the report.

Show the solution

Identify the matter: a prior-period modification that has not been resolved. The inventory limitation affects opening inventory, so it can affect current-period results and the corresponding figures.
An EoM does not apply. The issue is not a properly disclosed matter that users need pointed out. It is an unresolved limitation on the audit.
An OM paragraph does not apply either. ISA 710 reserves it for a prior-period modification that has been resolved, where the earlier modified report is still relevant to users.
Apply ISA 710. Where the prior-period modification is unresolved and results in a modification of the current-period opinion, the auditor modifies the current-period report.
Apply ISA 705 to decide the type of modification. A limitation on scope that is material but not pervasive normally leads to a qualified opinion ('except for'), covering the possible effect on current-period results (through opening inventory) and on the opening balances and comparatives.
A disclaimer of opinion is appropriate only if the possible effects are both material and pervasive. Nothing in the facts given suggests that.
Explain the reason in a Basis for Qualified Opinion section, using the facts given about the inventory limitation.
Discuss the proposed report with those charged with governance.

Answer: Modify the current-period opinion under ISA 705 and ISA 710, because the prior-period inventory limitation is unresolved. The usual outcome is a qualified ('except for') opinion on the possible effect on current-period results and on opening balances and comparatives. A disclaimer is for pervasive effects only. Do not use an Other Matter paragraph here. It applies only if the earlier modification has been resolved and the prior modified report is still relevant to users.

Exam tips

Always test disclosure first. 'Disclosed and fundamental' means EoM. 'Not disclosed but relevant to the audit' means OM. Missing disclosure means modification.
Write the key sentence that the opinion is not modified in respect of the matter. It is an easy mark.
Show the contrast with KAMs and going concern sections when the scenario offers a choice.
Use the facts in the scenario to draft the paragraph, and mention communication with those charged with governance for professional skills marks.
Do not claim an EoM can fix a faulty disclosure. Examiners often test this trap.

Practice questions from Auditor's reports

Emphasis of Matter and Other Matter Paragraphs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Emphasis of Matter and Other Matter Paragraphs: frequently asked questions

What is the difference between an Emphasis of Matter and a Key Audit Matter?

An EoM draws attention to a matter already disclosed that is fundamental to understanding the financial statements. A KAM is a matter of most significance in the audit. A KAM describes why it was significant and how the audit dealt with it. An EoM does not do this.

When do I use an Emphasis of Matter paragraph in AAA?

Use it when the matter is properly disclosed in the financial statements and is fundamental to users' understanding. Examples are a significant uncertainty, such as a major legal claim, or a significant subsequent event. The opinion stays unmodified.

Can an Other Matter paragraph be used for a matter that is not disclosed?

Yes. An OM relates to a matter not presented or disclosed in the financial statements that is relevant to understanding the audit, the auditor's responsibilities or the report. It cannot be used where management should disclose the matter.

Does an Emphasis of Matter modify the opinion?

No. Both EoM and OM paragraphs leave the opinion unmodified. If the matter is not adequately disclosed, the opinion must be modified under ISA 705 instead.