Advanced Auditing, Assurance and Professional Ethics · Reporting

SA 706 (Revised): Emphasis of Matter and Other Matter Paragraphs

Updated 5 October 2026 · Fact-checked

SA 706 (Revised) lets the auditor add a paragraph to the report without changing the opinion. An Emphasis of Matter paragraph points to a matter already presented or disclosed in the financial statements that is fundamental to users' understanding. An Other Matter paragraph refers to a matter not presented or disclosed in them that is relevant to understanding the audit, the auditor's responsibilities or the report.

Understand SA 706 (Revised): Emphasis of Matter and Other Matter Paragraphs

An auditor's opinion is either unmodified or modified. Sometimes the opinion is fine, but the auditor still wants users to notice something. SA 706 (Revised) gives two tools for this: the Emphasis of Matter (EOM) paragraph and the Other Matter (OM) paragraph. Neither changes the opinion.

Use an EOM paragraph when a matter is appropriately presented or disclosed in the financial statements and is of such importance that it is fundamental to users' understanding of them. The key test is that the matter is already in the financial statements. Typical examples are a significant uncertainty about the outcome of litigation, a major catastrophe that affected the entity, or early application of a new accounting standard with a pervasive effect. Do not use it for matters that deserve a modified opinion.

Use an OM paragraph when a matter is not presented or disclosed in the financial statements, and the auditor judges it relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report. Typical examples are the prior period financial statements being audited by a different auditor, a restriction on the distribution or use of the report, and reporting additional information on the auditor's responsibilities where law permits.

The two paragraphs have a common discipline. Each needs a separate heading, such as "Emphasis of Matter" or "Other Matter". An EOM paragraph must refer to where the matter is disclosed in the financial statements and must state that the opinion is not modified in respect of that matter. Placement depends on the nature of the matter and how relevant it is to users. Overuse of these paragraphs reduces their effect, so keep them for what truly matters.

There is also a link to Key Audit Matters. An EOM is not a substitute for describing individual KAMs in the KAM section. The auditor still decides separately whether a matter is a KAM. Note that a matter giving rise to a modified opinion, and a material uncertainty related to going concern, are by their nature key audit matters, but they are not described in the KAM section. They are reported in their own sections: the Basis for Qualified (Adverse) Opinion section or the Material Uncertainty Related to Going Concern section.

Key rules to remember

EOM paragraph: test: Matter is presented or disclosed in the financial statements + fundamental to users' understanding → EOM paragraph; Both conditions must hold. If the matter is not disclosed, the issue is a modified opinion or an OM paragraph, not EOM.
OM paragraph: test: Matter is NOT presented or disclosed in the financial statements + relevant to users' understanding of the audit, auditor's responsibilities or report → OM paragraph; Law or regulation must not prohibit the auditor from reporting it. It is not a way to cover a matter that should have been disclosed in the financial statements.
Effect on opinion: EOM or OM paragraph ≠ modification of opinion; The paragraph is not a substitute for a qualified, adverse or disclaimer of opinion where one is needed.
Heading and reference for EOM: Separate heading "Emphasis of Matter" + clear reference to the disclosure note + statement that the opinion is not modified; The paragraph must refer only to information presented or disclosed in the financial statements.
Heading for OM: Separate heading "Other Matter" or another suitable heading; Placement depends on the content of the matter and its relevance to users. When KAMs are included, the OM may sit in or next to the KAM section or elsewhere in the report, depending on relevance. If the matter is relevant to the report as a whole, it normally goes after the KAM section. Choose the position that makes it easy to identify.
Placement of EOM: Position depends on the nature of the matter and its relevance to users; SA 706 does not fix one position. When KAMs are included, use judgment on whether the EOM goes directly before or after the KAM section, or elsewhere. Place it so the user can easily identify it.
Communication with those charged with governance: If the auditor expects to include an EOM or OM paragraph, communicate this and the proposed wording to those charged with governance; This applies where the auditor expects to include the paragraph in the report.

How to solve SA 706 (Revised): Emphasis of Matter and Other Matter Paragraphs questions

Use the same sequence for any SA 706 question. It stops you from picking the wrong paragraph or from forgetting that the opinion stays unchanged.

1Read the facts and identify the matter the auditor wants to bring to attention.
2Ask first: is the financial statement itself misstated, or is there a scope limitation? If yes, the answer is a modified opinion, not EOM or OM.
3Check whether the matter is presented or disclosed in the financial statements. If yes and it is fundamental to understanding, choose EOM.
4If the matter is not in the financial statements and is relevant to understanding the audit, the auditor's responsibilities or the report, choose OM, provided law does not prohibit it.
5State the form: separate heading, reference to the note for EOM, and a statement that the opinion is not modified.
6State the placement: EOM and OM go in the position that fits their relevance, and they must be easy to find.
7Add the communication step: tell those charged with governance when you expect to include the paragraph.
8Close with a one-line conclusion: type of paragraph, opinion unchanged, reason.

Quickest way: Two-question screen for EOM versus OM

When to use it: Use this when a MCQ or short case asks which paragraph applies, or when you have little time for a written answer.

Question 1: Is the matter already disclosed in the financial statements? Yes → think EOM. No → think OM.
Question 2: Is the opinion itself affected because of misstatement or limitation? If yes, drop both and choose a modified opinion.
Write the one-line answer: paragraph type, reason, "opinion is not modified".
Add heading and reference to the note if marks allow.

Common mistakes in SA 706 (Revised): Emphasis of Matter and Other Matter Paragraphs

Using an EOM paragraph for a matter that is not disclosed in the financial statements.
Students focus on how important the matter is and forget the disclosure condition.
Fix: Check disclosure first. If the matter is not in the financial statements, it is either an OM paragraph or a modification issue.
Treating an EOM or OM paragraph as a way to avoid a qualified opinion.
Students see the paragraph as a softer option.
Fix: If there is a material misstatement or scope limitation, modify the opinion. EOM and OM never replace modification.
Saying the opinion is modified because an EOM paragraph is included.
Students confuse the extra paragraph with a change in the opinion.
Fix: State that the opinion is not modified in respect of the emphasised matter.
Forgetting to refer to the note in the financial statements in an EOM paragraph.
Students write the matter in full instead of pointing to the disclosure.
Fix: Refer to the note that discloses the matter and keep the paragraph short.
Using an OM paragraph for something management must disclose in the financial statements.
Students see it as a place to put any extra information.
Fix: OM is only for matters outside the financial statements that help users understand the audit or report. If management should disclose it and has not, consider a modified opinion.
Assuming an EOM is a replacement for a Key Audit Matter.
Both draw attention to a matter, so they feel the same.
Fix: Remember they serve different purposes. A matter being emphasised does not remove the need to determine whether it is a KAM.

Worked examples

Example 1

Case: While auditing the financial statements of Veda Ltd, you note that a major fire at its main plant damaged inventory just before year-end. The loss, the insurance claim position and the impact on operations are properly disclosed in Note 34. The accounting treatment is correct. You believe users must read the note to understand the company's position. Advise on the form of reporting.

Show the solution

Identify the matter: the fire and its effects on the company.
Check for misstatement or limitation: the treatment is correct and the disclosure is adequate, so no modification is needed.
Check disclosure: the matter is presented in Note 34 of the financial statements.
Check importance: it is fundamental to users' understanding of the financial position.
Conclude the paragraph type: both conditions of EOM are met.
Form: add a separate paragraph headed "Emphasis of Matter", refer to Note 34, describe the matter briefly, and state that the opinion is not modified in respect of it.
Communicate the expected paragraph to those charged with governance.

Answer: Include an Emphasis of Matter paragraph referring to Note 34 and stating that the opinion is not modified. A modified opinion is not needed because the disclosure is adequate.

Example 2

Case: You are the auditor of Tara Pvt Ltd for the current year. The prior year financial statements, presented as comparatives, were audited by another auditor who gave an unmodified opinion. Management has disclosed nothing about this in the notes. You issue an unmodified opinion on the current year. Must you include any paragraph in your report?

Show the solution

Identify the matter: the comparative figures were audited by a different auditor.
Check whether it is disclosed in the financial statements: it is not, so an EOM paragraph is not the right tool.
Check for a modification issue: the current year statements are fairly presented, so no modified opinion arises.
Apply SA 710 (para 13): where the prior period financial statements were audited by a predecessor auditor and law or regulation does not prohibit reference, the auditor may decide to refer to this in an Other Matter paragraph. Para 13 permits this; it does not require it. Here the predecessor's report was unmodified.
Form: if you decide to refer to it, use a separate heading such as "Other Matter". State that the prior period was audited by another auditor, the type of opinion expressed (here, unmodified) and the date of that report.
Check law: confirm that no law or regulation prohibits reporting this.
Note the limits of this answer: if the predecessor's report had been modified, or the prior period had been unaudited, other SA 710 requirements would apply, so check them in that case.
If you include the paragraph, communicate the expected wording to those charged with governance.

Answer: No paragraph is mandatory on these facts. SA 710 (para 13) permits you to include an Other Matter paragraph referring to the predecessor auditor's report, provided law does not prohibit it. If you do, it states that the prior period was audited by another auditor, the type of opinion expressed and the date of that report. The opinion on the current year remains unmodified either way. If the predecessor's report was modified or the prior period was unaudited, other SA 710 paragraphs apply.

Exam tips

Start any SA 706 answer by naming the test: "disclosed in the financial statements" for EOM and "not disclosed" for OM.
Always write "the opinion is not modified in respect of this matter" in an EOM answer. Examiners look for it.
In case MCQs, first rule out a modified opinion. Many wrong options offer EOM when the facts show a misstatement.
For written answers, use the provision-facts-conclusion form: state the rule, apply it to the facts, then conclude with the paragraph type.
Mention a separate heading and a reference to the note. These are easy marks that students skip.

Practice questions from Reporting

SA 706 (Revised): 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.

SA 706 (Revised): Emphasis of Matter and Other Matter Paragraphs: frequently asked questions

What is the difference between an Emphasis of Matter and an Other Matter paragraph?

An EOM paragraph refers to a matter that is already presented or disclosed in the financial statements and is fundamental to users' understanding. An OM paragraph refers to a matter that is not presented or disclosed in them but is relevant to understanding the audit, the auditor's responsibilities or the report. Neither changes the opinion.

Does an Emphasis of Matter paragraph modify the audit opinion?

No. The opinion stays unmodified. The paragraph must say that the opinion is not modified in respect of the matter emphasised. If the opinion needs to be modified, the auditor follows the rules on modified opinions instead.

Can I use an Emphasis of Matter paragraph instead of a Key Audit Matter?

No. They serve different purposes. A matter can be emphasised, but the auditor still decides separately whether it is a Key Audit Matter. An EOM does not take the place of a KAM.

Where should the EOM or OM paragraph be placed in the auditor's report?

Placement depends on the nature of the matter and its relevance to users. It needs a separate, clear heading so that users can easily find it. Choose the position that best serves the user.