## Emphasis of Matter (EOM) Paragraph

### What is EOM?

An EOM paragraph is used when the auditor wants to draw users' attention to a matter properly disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users' understanding — without modifying the opinion.

### Key Rule: EOM ≠ Modified Opinion

> The auditor's opinion remains unmodified even when an EOM paragraph is included. The paragraph only highlights something already disclosed.

### Three Mandatory Requirements When Including EOM

1. Separate section with a heading that includes the term "Emphasis of Matter"

2. Clear reference to the matter and to the specific note/disclosure in the financial statements where it is fully described (the paragraph must refer only to information already presented in the statements)

3. Explicit statement that the auditor's opinion is not modified in respect of the matter emphasized

### Common Circumstances Triggering EOM

Circumstance	Example
Exceptional litigation/regulatory uncertainty	Company facing High Court proceedings by a regulator; outcome uncertain
Significant subsequent event	Major acquisition announced after year-end but before audit report date
Early adoption of new accounting standard	Company adopts Ind AS 116 a year early with material impact
Major catastrophe	Factory destroyed by flood after year-end; significant ongoing financial impact

Worked example

### Example 1

Pure Services Ltd. scenario: Pure Services Ltd. is involved in litigation initiated by the industry regulator; the matter is pending before the High Court. The outcome is uncertain. The company has disclosed the litigation and its possible financial impact in Note 28 of the financial statements.

Auditor's action: Include an EOM paragraph:

Heading: 'Emphasis of Matter'
Body: 'We draw attention to Note 28 of the financial statements, which describes the uncertainty relating to the outcome of regulatory litigation pending before the High Court. Our opinion is not modified in respect of this matter.'

Why EOM and not Qualified? The matter is properly disclosed. There is no misstatement. The auditor simply wants to flag significance to users.

### Example 2

Scenario — what NOT to do: The same litigation case, but the auditor writes: 'In our opinion, subject to the resolution of litigation described in Note 28, the financial statements give a true and fair view.'

Error: This is an inappropriate conditional unmodified opinion. If the matter needs highlighting, use EOM. If it is material and unresolved enough to affect the opinion, consider Qualified/Disclaimer. Never use 'subject to' in the opinion paragraph itself.

⚠️ Common exam mistakes

Placing EOM content inside the Opinion paragraph rather than in a separate section with its own heading.
Omitting the explicit statement that the opinion is not modified — without this, readers may think the EOM represents a qualification.
Referring in the EOM paragraph to matters NOT disclosed in the financial statements — EOM can only point to existing disclosures.
Confusing EOM with a Qualified Opinion: EOM = properly disclosed matter highlighted; Qualified Opinion = material misstatement or scope limitation.

Bare-Act text Requirements – para 7 · SA 706 (Revised) – Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report · click to expand

When the auditor includes an Emphasis of Matter paragraph in the auditor's report, the auditor shall: (a) include the paragraph within a separate section of the auditor's report with an appropriate heading that includes the term 'Emphasis of Matter'; (b) include in the paragraph a clear reference to the matter being emphasized and to where relevant disclosures that fully describe the matter can be found in the financial statements. The paragraph shall refer only to information presented or disclosed in the financial statements; and (c) indicate that the auditor's opinion is not modified in respect of the matter emphasized.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Emphasis of Matter (EOM) Paragraph – SA 706

Worked example

⚠️ Common exam mistakes