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

## 1. Objective

To draw users' attention, when necessary in the auditor's judgment, by way of clear additional communication in the report, to:

A matter appropriately disclosed in the FS that is of such importance it is fundamental to users' understanding of the FS (→ EOM), OR
Any other matter relevant to users' understanding of the audit, auditor's responsibilities, or the report (→ OM).

## 2. Emphasis of Matter (EOM) Paragraph

Definition — A paragraph in the auditor's report that refers to a matter appropriately presented or disclosed in the FS which, in the auditor's judgment, is of such importance that it is fundamental to users' understanding.

When to include an EOM:

The auditor is NOT required to modify the opinion due to the matter.
The matter is NOT a KAM (i.e., not communicated under SA 701).

How to present:

Include in a separate section with the heading ‘Emphasis of Matter’.
Include a reference to the matter being emphasized and where the related disclosures can be found in the FS.
Indicate that the auditor's opinion is not modified in respect of the matter.

Examples of circumstances where EOM may be necessary:

Early application of a new accounting standard with material effect.
A major catastrophe having significant effect on financial position.
A significant subsequent event occurring between FS date and report date.
Uncertainty relating to the future outcome of exceptional litigation.

EOM is NOT a substitute for:

Disclosures required by AFRF.
Reporting per SA 570 (going concern).
A modified opinion when required by SA 705.

## 3. Other Matter (OM) Paragraph

Definition — A paragraph in the auditor's report referring to a matter other than those presented or disclosed in the FS that is relevant to users' understanding of the audit, auditor's responsibilities, or the report.

Conditions for inclusion:

Not prohibited by L&R.
The matter is not a KAM.
Must be in a separate section with appropriate heading.

## 4. Communication with TCWG

If the auditor expects to include an EOM or OM paragraph, he shall communicate to TCWG regarding:

The expectation, and
The wording of the paragraph.

## Quick Recall

EOM = matter in the FS, fundamental to user understanding.
OM = matter outside the FS, relevant to user understanding of the audit/report.
Neither modifies the opinion; neither is a substitute for disclosure, SA 570 reporting, or SA 705 modification.
If something qualifies as a KAM (SA 701), it goes there — not as EOM/OM.

Worked example

### Example 1

Q. XYZ Ltd suffered a major fire in March that destroyed a significant plant. The fact and its effect have been properly disclosed in the FS. The auditor wishes to highlight this for users. What should the auditor do?

A. Since the matter is appropriately disclosed in the FS and is fundamental to users' understanding, the auditor may include an Emphasis of Matter paragraph referring to the disclosure note, without modifying the opinion.

### Example 2

Q. The auditor has been appointed to fill a casual vacancy mid-year and wishes to draw users' attention to the fact that the prior year's FS were audited by another firm. Where would this go?

A. This is information not presented in the FS but relevant to users' understanding of the audit (prior period audit was by another auditor). It belongs in an Other Matter paragraph, provided it is not prohibited by L&R and is not a KAM.

### Example 3

Q. The auditor identifies that the FS fail to disclose a material contingent liability required by AFRF. Can the auditor address this via EOM?

A. No. EOM is not a substitute for required disclosure or for a modified opinion. As there is a material non-disclosure, the auditor must issue a modified opinion under SA 705 (Qualified or Adverse depending on pervasiveness).

⚠️ Common exam mistakes

Using an EOM to compensate for an undisclosed matter in FS — it must be already disclosed; otherwise SA 705 applies.
Putting matters in EOM that should be reported as KAM under SA 701.
Forgetting to state in EOM that the opinion is not modified.
Mixing EOM and OM — remember EOM is for matters inside FS; OM is for matters outside FS.
Failing to communicate the expected EOM/OM wording to TCWG.

Reference:

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SA 706 - Emphasis of Matter and Other Matter Paragraphs

Worked example

⚠️ Common exam mistakes