Corporate Accounting and Auditing · Audit Report and Reporting under CARO

SA 706 Emphasis of Matter and Other Matter Paragraphs

Updated 10 October 2026 · Fact-checked

An Emphasis of Matter (EOM) paragraph draws users' attention to a matter already 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. Neither modifies the opinion. Check the opinion is unaffected, the matter is not a KAM, then add the paragraph.

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

An auditor's report gives an opinion. Sometimes the auditor wants users to notice something more, without changing that opinion. SA 706 (Revised) provides two tools for this: the Emphasis of Matter (EOM) paragraph and the Other Matter (OM) paragraph.

An EOM paragraph points to a matter that is already presented or disclosed in the financial statements. The matter must be, in the auditor's judgment, so important that it is fundamental to users' understanding of the financial statements. A typical example is a subsequent event. The auditor only repeats the focus; the disclosure itself sits in the notes.

An OM paragraph covers 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 the scope of the audit, or reference to another auditor's report.

Key Audit Matters (KAMs) come from SA 701. They are the matters that, in the auditor's professional judgment, were of most significance in the audit of the current period. They are selected from matters communicated with those charged with governance. SA 700 (Revised) requires KAMs in the report for complete sets of general purpose financial statements of listed entities. The auditor may also communicate them for other entities of significant public interest, such as banks, insurance companies, pension funds and charities.

The link between the two: when SA 701 applies, an EOM paragraph is not a substitute for describing individual KAMs. A matter that is a KAM goes in the KAM section. If it is also fundamental to users, the auditor can show this by placing it first or by adding detail in its description. A matter that did not need significant auditor attention (so is not a KAM) but is fundamental to users can go in an EOM paragraph.

Key rules to remember

Conditions for an EOM paragraph (SA 706, para 8): EOM allowed only if: (a) no modification of opinion is needed under SA 705 (Revised) AND (b) when SA 701 applies, the matter is not a KAM; The matter must be presented or disclosed in the financial statements and be fundamental to users' understanding.
EOM vs OM test: Matter presented or disclosed in financial statements → EOM; matter not presented or disclosed → OM; Both are used to draw attention. Neither changes the opinion.
KAM definition (SA 701): KAMs = matters of most significance in the audit of the current period, selected from matters communicated with those charged with governance; Mandatory for complete sets of general purpose financial statements of listed entities (SA 700 para 30).
EOM is not a substitute for KAM: When SA 701 applies: EOM ≠ replacement for describing individual KAMs; A matter determined to be a KAM must be communicated as a KAM.
Placement of EOM with KAM section: EOM may sit directly before or after the Key Audit Matters section; Choose by relative significance. Adding context to the heading, e.g. "Emphasis of Matter – Subsequent Event", helps tell it apart from KAMs.
EOM on reporting framework: EOM about the applicable framework may be placed immediately after the Basis of Opinion section; This gives context to the opinion.

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

Use this method for any question asking whether to give an EOM, an OM, a KAM or a modified opinion.

1Read the facts and identify the matter and whether it is properly presented or disclosed in the financial statements.
2Ask if the matter causes a misstatement, inadequate disclosure or scope limitation. If yes, SA 705 applies and the opinion is modified. EOM is not the answer.
3If the matter is properly disclosed, check whether the entity is listed or SA 701 is otherwise applied, and whether the matter needed significant auditor attention. If yes, it is a KAM.
4If it is not a KAM but is fundamental to users' understanding of the financial statements, give an EOM paragraph.
5If the matter is not presented or disclosed in the financial statements but is relevant to users' understanding of the audit or the report, give an OM paragraph.
6State placement and heading, for example a separate paragraph with a heading such as "Emphasis of Matter – Subsequent Event".
7Close by stating that the opinion is not modified in respect of the matter.

Quickest way: Three-question filter

When to use it: For MCQs and short case-based questions where you must pick the correct type of paragraph quickly.

Q1: Does it affect the true and fair view (misstatement, missing disclosure, scope limit)? Yes → modified opinion (SA 705).
Q2: Is it disclosed in the financial statements? Yes → EOM (or KAM if it took most significant auditor attention). No → OM.
Q3: Is the entity listed and is the matter a KAM? Yes → KAM section, not EOM.

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

Using an EOM paragraph to deal with a material misstatement.
Students think EOM is a softer way to flag a problem.
Fix: SA 706 allows EOM only if the opinion need not be modified under SA 705. A misstatement needs a qualified or adverse opinion.
Saying an EOM paragraph is a qualification of the opinion.
Both appear in the report and both draw attention to something.
Fix: EOM does not modify the opinion. The opinion stays unmodified; the paragraph only highlights a disclosed matter.
Using EOM for a matter that is not disclosed in the financial statements.
Students mix up EOM and OM.
Fix: EOM refers to matters presented or disclosed in the financial statements. For matters not presented or disclosed, use OM.
Putting a KAM into an EOM paragraph.
Both highlight important matters.
Fix: When SA 701 applies, an EOM is not a substitute for describing individual KAMs. If a matter is a KAM, communicate it in the KAM section.
Thinking KAMs are only for listed entities.
SA 700 makes KAMs mandatory for listed entities, and students stop there.
Fix: Mandatory for listed entities; the auditor may also decide to communicate KAMs for other entities of significant public interest, such as banks and insurers.
Treating EOM and OM as optional extras that the auditor adds whenever convenient.
The word "may" appears often in the guidance on placement.
Fix: EOM is used only where the auditor considers it necessary and the conditions in para 8 are met. Use it for fundamental matters, not routine ones.

Worked examples

Example 1

A listed company's financial statements properly disclose, in a note, a major fire at a factory after the year-end. The auditor considers it fundamental to users' understanding but did not find it needed significant auditor attention during the audit. The auditor also believes the accounting is correct. Which paragraph should the auditor include, and does the opinion change?

Show the solution

The matter is presented or disclosed in the financial statements (a note), so EOM is the candidate paragraph.
The accounting and disclosure are correct, so SA 705 does not require a modified opinion. Condition (a) is met.
The entity is listed, so SA 701 applies. The matter did not require significant auditor attention, so it is not a KAM. Condition (b) is met.
The auditor considers it fundamental to users' understanding, so an EOM paragraph is justified. SA 706 itself gives a subsequent event as an example.
The auditor may head the paragraph "Emphasis of Matter – Subsequent Event", and place it directly before or after the KAM section.

Answer: Include an Emphasis of Matter paragraph drawing attention to the note on the fire. The opinion remains unmodified.

Example 2

The auditor of an unlisted company finds that a material receivable of ₹40,00,000 is irrecoverable but management refuses to make a provision. The auditor proposes to add an EOM paragraph pointing to the receivable and give an unmodified opinion. Is this correct? Explain.

Show the solution

Identify the matter: a material misstatement, since the receivable is overstated by ₹40,00,000.
Under SA 706 para 8, EOM is permitted only if the auditor would not be required to modify the opinion under SA 705 (Revised) because of the matter.
Here the misstatement is material and management will not correct it, so SA 705 requires a modified opinion (qualified or adverse, depending on pervasiveness).
An EOM cannot cure a misstatement. It highlights properly disclosed matters; it does not replace a modification.

Answer: No. The proposal is incorrect. The auditor must modify the opinion under SA 705 (Revised). An EOM paragraph is not allowed as a way to avoid it.

Exam tips

For "differentiate EOM and OM" questions, anchor on one line: EOM is for matters presented or disclosed in the financial statements; OM is for matters not presented or disclosed. Add that neither modifies the opinion.
In case studies, first ask whether SA 705 applies. If it does, EOM is wrong.
For KAM questions, state the definition, who must give KAMs (listed entities) and that others may be covered at the auditor's discretion.
Remember the placement points: EOM on the framework may follow the Basis of Opinion; EOM may sit before or after the KAM section.
Give an example in each answer, such as a subsequent event for EOM, and a scope-of-audit matter for OM.

Practice questions from Audit Report and Reporting under CARO

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 an Emphasis of Matter and an Other Matter paragraph?

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

Is an Emphasis of Matter paragraph the same as a qualified opinion?

No. An EOM paragraph is used only when the opinion does not need to be modified under SA 705 (Revised). A qualified opinion is a modification of the opinion. If a matter requires modification, EOM cannot be used instead.

What are Key Audit Matters under SA 701?

They are matters that, in the auditor's professional judgment, were of most significance in the audit of the current period's financial statements. They are selected from matters communicated with those charged with governance. They are required for complete sets of general purpose financial statements of listed entities.

Can a matter be both a KAM and an EOM?

When SA 701 applies, a matter determined to be a KAM is communicated in the KAM section, not as an EOM. If it is also fundamental to users, the auditor can show this by presenting it first or adding detail in its description.