## SA 706 – EOM Para & OM Para

### Emphasis of Matter (EOM) Para

#### Meaning

A matter that is appropriately presented or disclosed in the FS but is of such importance that it is fundamental to users' understanding of the FS.

> Key distinction: EOM is used when the matter is already disclosed in the FS — the auditor is drawing attention to it, not correcting it.

#### Requirements for EOM Para

Use the heading 'Emphasis of Matter' (or another appropriate heading).
Include a clear reference to the matter being emphasised.
State that the auditor's opinion is not modified in respect of the matter.

#### Mnemonic for EOM Examples: LACS

Letter	Example
L	An uncertainty relating to the future outcome of exceptional litigation or regulatory action
A	Early application of a new accounting standard that has a pervasive effect on the FS before its effective date
C	A major catastrophe with a significant effect on the entity's financial position
S	A significant subsequent event occurring after the FS date but before the auditor's report date

#### EOM is NOT a substitute for

A modified opinion (SA 705) when circumstances require one.
Disclosures in the FS that management is required to make.
Going concern reporting when a material uncertainty exists (SA 570).

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### Other Matter (OM) Para

An Other Matter paragraph addresses a matter not presented or disclosed in the FS that, in the auditor's judgment, is relevant to users' understanding of the audit, auditor's responsibilities, or the auditor's report. (Detail covered in full SA 706 reading.)

Worked example

### Example 1

Example 1 – LACS: L (Litigation): ABC Ltd. is a defendant in a lawsuit for ₹50 crores. The outcome is uncertain but management has disclosed it appropriately in the notes. The auditor includes an EOM para stating: 'We draw attention to Note 18 of the FS which describes an uncertainty relating to the outcome of a lawsuit filed against the company. Our opinion is not modified in respect of this matter.'

### Example 2

Example 2 – LACS: C (Catastrophe): XYZ Ltd.'s major factory was destroyed by floods after the balance sheet date but before the audit report. The event is disclosed in the FS. The auditor issues an EOM para referencing this catastrophe and clarifying the opinion is not modified.

### Example 3

Example 3 – EOM vs. Modified Opinion: An auditor discovers that inventory is overstated by ₹20 crores and management refuses to correct it. The auditor CANNOT use EOM — EOM is only for matters appropriately disclosed. Here, a Qualified or Adverse Opinion under SA 705 is required.

### Example 4

Example 4 – EOM vs. Going Concern: An entity faces significant going concern doubt. Management discloses it but the auditor feels it is material. The auditor must apply SA 570 (going concern reporting) — an EOM para alone is not a substitute for that required reporting.

⚠️ Common exam mistakes

Using EOM for a matter that is NOT disclosed in the FS — EOM applies only to matters that are appropriately presented/disclosed; undisclosed matters require a modified opinion.
Thinking EOM modifies the opinion — EOM must explicitly state the opinion is NOT modified.
Confusing EOM with going concern reporting: a going concern material uncertainty requires SA 570 treatment, not merely an EOM para.
Using EOM as a workaround for issuing a modified opinion — they serve different purposes and EOM cannot substitute for qualification, adverse, or disclaimer.
Forgetting the LACS mnemonic and misclassifying events — e.g., treating a subsequent event as an OM instead of EOM when it is already disclosed in the FS.

Reference:

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SA 706 – Emphasis of Matter (EOM) and Other Matter (OM) Paragraphs

Worked example

⚠️ Common exam mistakes