Side-by-side comparison
| Dimension | Key Audit Matter (KAM) | Emphasis of Matter (EOM) |
|---|---|---|
| Governing standard | ISA 701.8–701.13 | ISA 706.6–706.7 |
| When mandatory | Audits of listed entities (and when law or regulation requires) | Never mandatory; always auditor judgment |
| What it communicates | How the auditor addressed the matter during the audit | That a disclosed matter is fundamental to users' understanding |
| Describes audit procedures | Yes. ISA 701.13 requires a description of how the matter was addressed. | No. The paragraph references the disclosure only. |
| Cross-reference required | To the related disclosure, where relevant (ISA 701.13(b)) | Always. ISA 706.7(b) requires a specific note reference. |
| Typical content length | Several paragraphs per KAM | Two to four sentences |
Key Points
- KAMs describe audit effort on significant matters. An EOM paragraph highlights a disclosure without describing audit work.
- KAMs are mandatory for audits of listed entities. EOM paragraphs are always a matter of auditor judgment.
- A single matter can appear as both a KAM and an EOM paragraph, but the two sections serve different functions.
- Omitting a KAM is an ISA 701 violation. Omitting an EOM is a judgment call, not a compliance failure.
When the distinction matters on an engagement
On a listed-entity audit, you will have both sections in the report. The risk is duplication: describing a going concern uncertainty as a KAM with full procedural detail, then repeating the same matter in an EOM paragraph that references the disclosure. ISA 701.A14 addresses this directly. It states that if a matter is communicated as a KAM, the auditor is not required to include a separate EOM paragraph for that same matter. But ISA 706.A1 still permits it.
This creates a judgment call. If the entity has a material uncertainty related to going concern and the auditor wants to draw particular attention to the disclosure (separate from the KAM description of audit procedures), both sections can coexist. The FRC has flagged reports where firms included both but used near-identical wording in each, which defeats the purpose of having two separate communication vehicles.
Worked example: Vanderstraeten Holding N.V.
Client: Belgian holding company, FY2024, consolidated revenue €180M, IFRS reporter, listed on Euronext Brussels.
KAM section (goodwill impairment)
Vanderstraeten carries €45M of goodwill from three acquisitions made between 2019 and 2022. The impairment test required estimating future cash flows for each cash-generating unit and selecting both discount rates and terminal growth rates.
Documentation note: "KAM selected under ISA 701.9 because this required significant auditor judgment. Engagement partner confirmed KAM selection in pre-issuance review memo dated 14 February 2025."
The KAM paragraph in the report describes the auditor's response: engaging a valuation specialist to assess management's discount rates, testing the sensitivity of headroom to a 1% change in WACC, evaluating revenue forecast consistency with board-approved budgets, and comparing terminal growth rates against macroeconomic benchmarks. ISA 701.13 requires this procedural description.
EOM paragraph (same engagement, different matter)
During FY2024, the Belgian tax authority challenged Vanderstraeten's transfer pricing arrangements for its Luxembourg subsidiary. Management disclosed the dispute and the potential €6.2M liability in Note 22. The auditor includes an EOM paragraph referencing Note 22, noting that the outcome is uncertain and the amount represents 3.4% of revenue.
Documentation note: "EOM included under ISA 706.6. Cross-reference to Note 22. The matter is fundamental to users' understanding because the potential outflow is material. This matter does not qualify as a KAM because the audit procedures were routine (confirming the legal opinion, testing the provision calculation)."
If the tax dispute were presented as a KAM, the auditor would need to describe how the matter was addressed during the audit. If those procedures were straightforward (confirm the legal opinion, recalculate the provision), the KAM description would be thin and would imply more judgment than was actually required. Misclassification inflates the significance of routine work.
What reviewers get wrong
The FRC's 2022 thematic review of KAM reporting found that some firms produced KAM descriptions that were too generic to be useful. The descriptions repeated standard audit procedures without explaining why those procedures were responsive to the specific risk. ISA 701.13(a) requires a description of why the matter was considered most significant, not just what the auditor did.
Teams sometimes omit an EOM paragraph for a going concern material uncertainty when the same matter appears as a KAM, assuming the KAM covers it. ISA 570.22 still requires the EOM paragraph when a material uncertainty exists and is adequately disclosed, regardless of whether a KAM is also included.
Key standard references
- ISA 701.8–701.13: Defines KAMs and requires a description of why the matter was significant and how it was addressed.
- ISA 706.6–706.7: Governs EOM paragraphs, requiring a cross-reference to the related disclosure.
- ISA 701.A14: States that a KAM does not remove the option to include a separate EOM paragraph.
- ISA 570.22: Requires an EOM paragraph for material uncertainty related to going concern, even when a KAM is included.
Related terms
Related reading
Frequently asked questions
Can the same matter appear as both a KAM and an emphasis of matter paragraph?
Yes. ISA 701.A14 states that a KAM description does not remove the option to include a separate EOM paragraph for the same matter under ISA 706.A1. However, the two sections must serve different functions: the KAM describes audit procedures performed, while the EOM draws attention to the disclosure. The FRC has flagged reports where firms used near-identical wording in both sections.
Is a KAM section required for all audits?
No. ISA 701 requires KAMs only for audits of listed entities and where law or regulation mandates it. For non-listed entity audits, the auditor may voluntarily communicate KAMs but is not required to do so. Omitting a KAM section on a non-listed audit is not a compliance failure.