Think of SA 706 as the auditor's way of saying: "My opinion is clean — but there's something important you really should know." It gives the auditor two special tools to highlight matters without changing the audit opinion itself.
Emphasis of Matter (EOM) paragraph is used when a matter is already disclosed in the financial statements but is so fundamental that the auditor wants to wave a flag at it. Classic triggers: a significant going concern uncertainty where the note is in the financials, a major pending litigation disclosed in notes, or early adoption of an accounting standard. The auditor adds a paragraph headed "Emphasis of Matter", refers the reader to the relevant note, and explicitly states the opinion is not modified because of it. Think of it like a teacher circling a question and writing "READ THIS CAREFULLY" — the content is already there, the teacher is just making sure you don't miss it.
Other Matter (OM) paragraph is used when the auditor wants to communicate something not presented or disclosed in the financials but still relevant to users. Examples: prior year FS were audited by a different firm, the current audit report is restricted only for a specific purpose, or the auditor is commenting on a comparative period. Headed "Other Matter", it sits after the opinion (and after EOM if both appear). The golden rule: OM deals with matters outside the FS; EOM deals with matters inside the FS.
Both paragraphs appear after the Opinion paragraph but before the Key Audit Matters section (if applicable). Neither modifies the auditor's opinion — they are purely communicative. This distinction is exam gold. Also remember: if the matter rises to the level of a modified opinion (qualified, adverse, disclaimer), SA 706 paragraphs are NOT used — SA 705 takes over instead. SA 706 is strictly for unmodified opinions that need supplementary communication.
Example 1 — Emphasis of Matter
Rajesh & Co. Pvt. Ltd. has total assets of ₹8,50,00,000 (₹8.5 crore). During the year it incurred a net loss of ₹1,20,00,000 (₹1.2 crore) and its current liabilities exceed current assets by ₹2,00,00,000 (₹2 crore). Management has disclosed this going concern uncertainty in Note 3 of the financial statements and prepared the accounts on a going concern basis citing a ₹5,00,00,000 (₹5 crore) term loan sanction expected in Q1 of next year.
The auditor:
- Reviews the disclosure — it is adequate and in the FS ✓
- Concludes the going concern basis is appropriate
- Issues an unmodified opinion
- Adds an EOM paragraph pointing to Note 3
Audit report extract:
> Emphasis of Matter — Material Uncertainty Related to Going Concern
> We draw attention to Note 3 of the financial statements, which indicates that the Company incurred a net loss of ₹1,20,00,000 during the year ended 31 March 2025 and its current liabilities exceed current assets by ₹2,00,00,000 as at that date. These conditions indicate a material uncertainty... Our opinion is not modified in respect of this matter.
Conclusion: EOM used. Opinion remains unmodified.
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Example 2 — Other Matter
Ms. Iyer is auditing Bright Future Ltd. for FY 2024–25. The comparative figures for FY 2023–24 (shown in the FS) were audited by a previous auditor, Mr. Sharma, whose report was unmodified. Ms. Iyer has no information suggesting the prior year figures are wrong, but users reading her report should know she is only responsible for the current year audit.
The auditor:
- This matter is not disclosed anywhere in the financial statements
- It is relevant to users' understanding of the audit
- Issues an unmodified opinion
- Adds an OM paragraph
Audit report extract:
> Other Matter
> The financial statements of Bright Future Ltd. for the year ended 31 March 2024 were audited by another auditor whose report dated 15 June 2024 expressed an unmodified opinion on those statements. Our opinion is not modified in respect of this matter.
Conclusion: OM used. Opinion remains unmodified.