The Emphasis of Matter (EoM) paragraph is the finding inspectors read twice and engagement teams barely read once. The AFM’s 2023 thematic review flagged EoM paragraphs that had been copy-pasted from prior year files without anyone checking whether the underlying disclosure had even been updated. That’s the trap. Teams mix up EoM with a qualification under ISA 705 because both involve “flagging something important.” They serve different purposes. One draws the reader’s eye to something already disclosed. The other changes the opinion itself.
Under ISA 706 (Revised), an EoM paragraph draws attention to a matter presented or disclosed in the financial statements (FS) that is fundamental to users’ understanding, while an Other Matter (OM) paragraph addresses matters relevant to the audit or auditor’s report that are not disclosed in the FS, and neither type modifies the opinion.
Key Takeaways
- ISA 706 (Revised) governs two types of additional communication in the auditor’s report: Emphasis of Matter (EoM) paragraphs and Other Matter (OM) paragraphs. Neither modifies the auditor’s opinion.
- An Emphasis of Matter paragraph draws users’ attention to a matter presented or disclosed in the FS that is fundamental to their understanding. It concerns the FS themselves. For the distinction between EoM and OM paragraphs, see the EoM vs. Other Matter comparison.
- An Other Matter paragraph refers to a matter not presented or disclosed in the FS but relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report. It concerns the audit or the report, not the FS.
- EoM conditions: the matter does not require a modified opinion under ISA 705, and (when ISA 701 applies) the matter has not been determined as a KAM. The paragraph must include a clear reference to the relevant disclosure and a statement that the opinion is not modified.
- OM conditions: the matter is not prohibited by law or regulation, and (when ISA 701 applies) has not been determined as a KAM.
- ISA 706 (Revised) is most frequently triggered by specific requirements in other ISAs, including ISA 560 (subsequent events), ISA 570 (going concern under the current standard), ISA 710 (comparative information), and ISA 800/805 (special purpose and single statements).
- The auditor must communicate with those charged with governance when expecting to include either type of paragraph, including discussing the proposed wording.
Table of contents
- What is ISA 706 (Revised)?
- Emphasis of Matter Paragraphs
- Other matter paragraphs
- Relationship with KAM
- ISA 706 (Revised) in your jurisdiction
- Frequently asked questions
- Further reading and source references
What is ISA 706 (Revised)?
ISA 706 (Revised), titled “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report,” addresses situations where the auditor wants to draw users’ attention to matters beyond what the standard report communicates, without modifying the opinion.
These paragraphs serve a signposting function. They tell the reader “look at this particular matter; it is important for understanding these FS (EoM) or this audit (OM).” They are a tool for better communication, not a halfway house for a modified opinion. In our experience, the WPs for EoM paragraphs are the thinnest in the file, and that’s usually where the inspector starts. The file should tell a story about why you included the paragraph, not just that you did.
Emphasis of matter paragraphs
Definition
A paragraph that refers to a matter appropriately presented or disclosed in the FS that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the FS.
When to include
An EoM paragraph is appropriate when the auditor considers it necessary to draw attention to a matter that:
- Is appropriately presented or disclosed (if it were not, the auditor would consider a modified opinion under ISA 705).
- Is of such importance that it is fundamental to users’ understanding.
- Does not require the opinion to be modified.
- (When ISA 701 applies) has not been determined as a KAM.
Common circumstances
Required by other ISAs
Several ISAs specifically require or contemplate EoM paragraphs in certain situations. Examples include FS prepared using a special purpose framework (ISA 800) and certain going concern situations under the current ISA 570 (e.g., when FS are appropriately prepared on a break-up basis with adequate disclosure).
Auditor’s judgment
Beyond specific ISA requirements, the auditor may use professional judgment to include an EoM paragraph. Common examples include exceptional litigation with significant uncertainty where the outcome is properly disclosed, a significant subsequent event between the reporting date (RN) and the auditor’s report date, early application of a new accounting standard with material effect, and a major catastrophe that has significantly affected the entity’s financial position.
Form requirements
The EoM paragraph must:
- Be in a separate section with a heading including the term “Emphasis of Matter” (an appropriate subheading may further describe the specific matter, e.g., “Emphasis of Matter: Subsequent Event”).
- Include a clear reference to the matter being emphasised and where it is disclosed in the FS.
- State that the auditor’s opinion is not modified in respect of the matter.
Other matter paragraphs
Definition
A paragraph that refers to a matter other than those presented or disclosed in the FS that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.
When to include
An OM paragraph is appropriate when the auditor considers it necessary to communicate a matter not related to the FS themselves but relevant to the audit context. The matter must not be prohibited from communication by law or regulation.
Common circumstances
Prior period audited by a predecessor auditor (ISA 710)
When corresponding figures were audited by another auditor, the current auditor includes an OM paragraph identifying the predecessor, the type of opinion expressed, and the date of the predecessor’s report.
Prior period not audited (ISA 710)
If the comparative figures for the prior year (PY) were not audited, the auditor states this in an OM paragraph.
Restriction on distribution (ISA 800/805)
When FS are prepared for a specific purpose and the auditor wants to alert readers that they may not be suitable for other purposes.
Reporting on more than one set of FS
When the entity prepares FS under two frameworks.
Withdrawal not possible
In rare circumstances where the auditor wishes to withdraw but cannot (e.g., due to legal requirements), an OM paragraph may explain the circumstances.
EoM vs. OM: the key distinction
The distinction is simple but often confused. Ask: is the matter in the FS? If yes, Emphasis of Matter (it draws attention to something that management has disclosed). If no, Other Matter (it tells users something about the audit or the report that the FS do not address). An EoM paragraph always references a specific disclosure in the FS. An OM paragraph does not. It addresses audit-level information.
Relationship with KAM
When ISA 701 applies (listed entities), the interplay between KAM and EoM/OM paragraphs requires careful consideration:
- A matter cannot be both a KAM and an EoM paragraph. If the matter is determined as a KAM, the KAM description under ISA 701 takes precedence, and a separate EoM paragraph is not appropriate for the same matter.
- If the matter warrants emphasis but is not a KAM (e.g., because it did not require significant auditor attention but is fundamental to users’ understanding), an EoM paragraph remains appropriate.
- OM paragraphs can coexist with KAM because they address different things (the audit context vs. the FS).
- When ISA 701 does not apply (non-listed entities), EoM and OM paragraphs operate without this interaction. At firms like ours, that’s also where EoM drift creeps in fastest. The PY paragraph gets copied forward and nobody re-reads the note it points to.
ISA 706 (Revised) in your jurisdiction
Netherlands
COS 706 follows ISA 706 (Revised). In Dutch practice, EoM paragraphs are used for situations such as significant subsequent events, early adoption of new accounting standards (e.g., IFRS 17 transitions), and going concern matters. The AFM has noted that auditors should not use EoM paragraphs as a substitute for modifying the opinion when modification is warranted.
Germany
IDW PS 406 adapts ISA 706 (Revised). German practice uses the Hervorhebung eines Sachverhalts (emphasis of matter) and Sonstige Sachverhalte (other matters). The German long-form Prüfungsbericht already provides extensive discussion of significant matters, but the EoM/OM paragraphs in the Bestätigungsvermerk serve a distinct signposting function for users who read only the opinion.
United Kingdom
ISA (UK) 706 is substantively aligned with ISA 706 (Revised). Given the UK’s extended auditor reporting requirements, EoM paragraphs are less common for listed entities (where KAM and other UK-specific reporting sections often cover similar ground). For non-PIE entities, EoM paragraphs remain an important communication tool.
France
NEP 706 implements ISA 706 (Revised). French auditor’s reports include an observation (similar to EoM) as a standard feature. The commissaire aux comptes frequently uses observations to draw attention to accounting policy changes, significant subsequent events, going concern matters, and related party transactions. This makes French reports generally more communicative than the minimum ISA baseline.
Frequently asked questions
Does an emphasis of matter paragraph mean something is wrong?
No. An EoM paragraph explicitly states that the opinion is not modified. It draws attention to a matter that management has appropriately disclosed. The auditor is simply telling users “this matter is particularly important for understanding these FS.”
Can EoM paragraphs appear alongside modified opinions?
Yes. An EoM paragraph can appear in an auditor’s report that contains a qualified or adverse opinion, provided it addresses a different matter from the one causing the modification. For example, a qualified opinion for inventory scope limitation could coexist with an EoM paragraph about a subsequent event.
Is the auditor required to include an EoM paragraph for every significant uncertainty?
No. The auditor uses professional judgment to determine whether a matter is fundamental to users’ understanding. Not every uncertainty warrants an EoM paragraph, particularly if the matter is adequately disclosed and not considered to be of such fundamental importance.
Where is the EoM paragraph placed in the report?
The placement depends on the auditor’s judgment about the relative significance of the matter compared to other elements. It is typically placed after the Basis for Opinion section (and after any Material Uncertainty Related to Going Concern section and KAM section, if present).
Further reading and source references
- IAASB Handbook 2024: ISA 706 (Revised) full text. The authoritative source including illustrative reports with EoM and OM paragraphs.
- Appendix 1: List of ISAs requiring EoM paragraphs in specific circumstances.
- Appendix 2: List of ISAs requiring OM paragraphs in specific circumstances.
- ISA 700 (Revised): The baseline report structure that EoM/OM paragraphs supplement.
- ISA 701: KAM. The interaction with EoM paragraphs.
This guide reflects the ISA 706 (Revised) text as published in the IAASB 2024 Handbook. National implementations may include additional requirements. Always consult the applicable national standard alongside the international text. This content is for educational purposes and does not constitute legal or professional advice.
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