Auditing and Ethics · Audit Report

Emphasis of Matter and Other Matter Paragraphs (SA 706)

Updated 4 October 2026 · Fact-checked

SA 706 lets the auditor add a paragraph to the report without changing the opinion. An Emphasis of Matter paragraph points to a matter already properly presented or disclosed in the financial statements. An Other Matter paragraph points to a matter not presented or disclosed there, relevant to understanding the audit, auditor's responsibilities or the report.

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

Sometimes the financial statements are fine, and the auditor gives an unmodified opinion, but a particular matter is so important that users should not miss it. SA 706 gives the auditor a tool for this: an extra paragraph in the report. The opinion stays unmodified.

An Emphasis of Matter (EOM) paragraph refers to a matter that is appropriately presented or disclosed in the financial statements and is of such importance that it is fundamental to users' understanding of the financial statements. Common examples are an uncertainty relating to the future outcome of exceptional litigation or regulatory action, a significant subsequent event, early application of a new accounting standard with a pervasive effect, or a major catastrophe that has affected the entity.

An Other Matter (OM) paragraph refers to a matter other than those presented or disclosed in the financial statements that the auditor judges relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report. Examples are the prior period financial statements being audited by another auditor, or the report being restricted to specified users, where law permits.

The key test is simple. Is the matter disclosed in the financial statements? If yes, and it is fundamental, use EOM. If no, and it helps understand the audit or report, use OM.

These paragraphs are not a substitute for a modified opinion. If the financial statements are misstated or the disclosure is inadequate, the auditor must modify the opinion under SA 705. Also, an EOM cannot replace disclosure that management should have made. Key Audit Matters under SA 701 are different: they are matters of most significance in the audit, not matters the auditor wants to stress about the financial statements.

Key rules to remember

EOM condition: EOM = matter appropriately presented or disclosed in FS + fundamental to users' understanding; Both parts must be met. If disclosure is inadequate, the opinion is modified instead.
OM condition: OM = matter NOT presented or disclosed in FS + relevant to users' understanding of the audit, auditor's responsibilities or the report; The auditor uses judgment. Law or regulation must not prohibit the communication.
Placement of EOM: EOM paragraph is included in a separate section of the report with the heading "Emphasis of Matter" or another suitable heading; Its position depends on the auditor's judgment about the nature of the matter and its relative importance. It is commonly placed immediately after the Basis for Opinion section. Refer to the matter and to where the disclosure is in the FS.
Placement of OM: OM paragraph is placed in a separate section titled "Other Matter" or another suitable heading; Its position is a matter of the auditor's judgment and depends on what is being communicated. If it relates to other reporting responsibilities, it may go under the section on other legal and regulatory requirements.
Wording of EOM: EOM must state that the opinion is not modified in respect of the matter emphasised; Include a clear reference to the matter and to the note in the FS that describes 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 is a procedural point examiners like to test.

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

Use this method for any SA 706 question, whether it asks you to identify the paragraph, draft it or explain the difference.

1Read the facts and decide whether the financial statements are otherwise fairly presented. If not, SA 705 applies and the opinion is modified.
2Ask: is the matter disclosed in the financial statements? Check whether a note exists.
3If disclosed and fundamental to understanding, choose Emphasis of Matter. If not disclosed but relevant to the audit or report, choose Other Matter.
4If the disclosure is missing or inadequate, say a modified opinion is needed rather than EOM.
5State the heading, the placement in the report, and that the opinion is not modified.
6Draft the paragraph: describe the matter briefly, refer to the note number in the FS, and add the no-modification statement.
7Mention that the auditor should communicate the proposed paragraph to those charged with governance.
8Write a one-line conclusion naming the paragraph used and why.

Quickest way: Disclosed or not: the 30-second SA 706 test

When to use it: Use this for MCQs and for the first line of any written answer on EOM versus OM.

MCQ: look for the word 'disclosed' or 'note to the financial statements'. Disclosed and fundamental means EOM.
MCQ: look for another auditor, restricted use, or prior period audited by someone else. These point to OM.
MCQ: if the question says opinion is modified or disclosure is inadequate, eliminate EOM options.
MCQ: eliminate any option saying EOM modifies the opinion or replaces a Key Audit Matter.
Written: use a three-part format: provision (SA 706 definition), facts (link the case to the note), conclusion (EOM or OM, opinion unmodified).
Written: always add the placement and the 'our opinion is not modified' wording to pick up easy step marks.

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

Saying EOM modifies the audit opinion.
Students think any extra paragraph is a warning and treat it like a qualification.
Fix: Remember that EOM and OM appear with an unmodified opinion. A modified opinion comes only under SA 705.
Using EOM when the matter is not disclosed in the financial statements.
Students focus on the importance of the matter and ignore the disclosure condition.
Fix: First check for a note. No disclosure means OM at best, or a modified opinion if disclosure was required.
Using EOM to fix inadequate disclosure.
It seems a softer way to report a problem.
Fix: If management has not disclosed what the framework requires, modify the opinion. EOM cannot substitute for required disclosure.
Confusing EOM with Key Audit Matters.
Both draw attention to specific matters and sit in separate sections.
Fix: KAMs are matters of most significance in the audit itself. EOM is about a fundamental matter in the financial statements. An EOM does not replace a KAM description.
Leaving out the reference to the note and the no-modification statement in a drafted paragraph.
Students write only the facts of the matter.
Fix: Always cite the note number and state that the opinion is not modified in respect of the matter.
Using EOM for every minor uncertainty or event.
Students want to be safe and over-report.
Fix: Use EOM only when the matter is fundamental. Overuse reduces the usefulness of the paragraph.

Worked examples

Example 1

The financial statements of ABC Ltd for the year ended 31 March 2027 include Note 32, which discloses a major tax litigation whose outcome is uncertain. The amount is significant. The auditor is satisfied that the disclosure is adequate and that the statements are otherwise fairly presented. What kind of paragraph should the auditor include, and where?

Show the solution

Check the opinion: the statements are fairly presented and the disclosure is adequate, so the opinion remains unmodified.
Check disclosure: the litigation is disclosed in Note 32, so the matter is presented in the financial statements.
Check importance: the matter is significant and uncertain, so it is fundamental to users' understanding.
Both conditions of SA 706 for an Emphasis of Matter paragraph are met.
Placement: put the paragraph in a separate section under the heading 'Emphasis of Matter', commonly placed immediately after the Basis for Opinion section. The exact position is the auditor's judgment.
Content: describe the matter briefly, refer to Note 32, and state that the opinion is not modified in respect of this matter.
Communicate the proposed paragraph to those charged with governance.

Answer: The auditor should include an Emphasis of Matter paragraph referring to Note 32, stating that the opinion is not modified in respect of that matter.

Example 2

The financial statements of XYZ Ltd for the previous year were audited by another auditor, who issued an unmodified opinion. The current auditor is reporting on the current year and wants to inform users about this. Which SA 706 paragraph applies, and why is it not an Emphasis of Matter?

Show the solution

Identify the fact: the prior period statements were audited by a different auditor. This is a fact about the audit, not a matter in the financial statements.
Test disclosure: the identity of the previous auditor and the nature of the earlier report are not presented as a note to the financial statements.
Test relevance: it helps users understand the audit and the auditor's report, particularly the comparatives.
Because the matter is not presented or disclosed in the financial statements, it cannot be EOM.
It fits an Other Matter paragraph under the heading 'Other Matter'.
Content: state that the prior period financial statements were audited by another auditor, the date of that report and the type of opinion expressed.
Check that the paragraph does not modify the opinion on the current year financial statements.

Answer: An Other Matter paragraph applies. It is not EOM because the matter is not presented or disclosed in the financial statements. The paragraph states the prior period audit by another auditor and does not modify the current opinion.

Exam tips

Start every SA 706 answer with the disclosure test. Examiners often build the question around whether a note exists.
Learn two or three standard examples for each paragraph: litigation uncertainty or subsequent event for EOM, and prior period audited by another auditor for OM.
In drafting questions, include the heading, a reference to the note and the sentence that the opinion is not modified. These carry step marks.
Be ready to contrast EOM, OM, KAM and a modified opinion in a short comparison, because this is a common written question.
In MCQs, eliminate any option that links EOM with a qualified or adverse opinion.

Practice questions from Audit Report

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

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

An Emphasis of Matter paragraph deals with a matter that is already presented or disclosed in the financial statements and is fundamental to users' understanding. An Other Matter paragraph deals with a matter not presented or disclosed there, but relevant to understanding the audit, the auditor's responsibilities or the report. Neither modifies the opinion.

Does an Emphasis of Matter paragraph affect 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 financial statements are misstated or disclosure is inadequate, the auditor modifies the opinion under SA 705.

Can an auditor use an Emphasis of Matter paragraph instead of a qualified opinion?

No. An EOM cannot be a substitute for a modified opinion when one is required. It applies only when the matter is properly disclosed and the financial statements are otherwise fairly presented.

Is an Emphasis of Matter paragraph the same as a Key Audit Matter?

No. Key Audit Matters are matters that required the most significant auditor attention in the audit, described under SA 701. An EOM draws attention to a fundamental disclosed matter. An EOM does not replace the need to describe a matter that is a KAM.