## SA 706 — Additional Communication in the Auditor's Report

### Scope

SA 706 applies when the auditor needs to draw users' attention to something beyond the standard opinion — either:

Something in the financial statements that is critical for understanding them, OR
Something outside the financial statements that is relevant to understanding the audit, the auditor's responsibilities, or the report itself.

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### Two Types of Paragraphs

#### 1. Emphasis of Matter (EOM) Paragraph

What it covers: A matter that IS presented or disclosed in the FS.
Threshold: Of such importance that it is fundamental to users' understanding of the FS.
Opinion effect: The opinion is NOT modified — the EOM paragraph is additional, not a modification.
Placement: After the opinion paragraph, under a heading like "Emphasis of Matter."

Think of EOM as: "The FS show it, and we want to make sure you really notice it."

#### 2. Other Matter (OM) Paragraph

What it covers: A matter that is NOT presented or disclosed in the FS.
Threshold: Relevant to users' understanding of the audit, the auditor's responsibilities, or the auditor's report.
Opinion effect: Does NOT modify the opinion.
Placement: After the opinion paragraph (and after EOM paragraph if both exist).

Think of OM as: "This isn't in the FS at all, but you need to know this about the audit itself."

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### Side-by-Side Comparison

Feature	EOM Paragraph	OM Paragraph
Source of matter	Disclosed in the FS	Outside the FS
Purpose	Highlight FS matter	Communicate about audit/report
Modifies opinion?	No	No
Heading used	"Emphasis of Matter"	"Other Matter"
User relevance	Understanding the FS	Understanding the audit/report

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### Common Examples of Each

EOM situations:

Significant uncertainty related to litigation disclosed in the notes
Early application of a new accounting standard
Major catastrophe after balance sheet date (disclosed in notes)
Going concern uncertainty with adequate disclosure (handled under SA 570 but communicated via EOM-style section)

OM situations:

Reporting on prior-period comparative FS audited by a predecessor auditor
Restriction on distribution of the audit report
Required by law to report on a matter not relevant to FS users

Worked example

### Example 1

EOM Example: A company discloses in Note 12 that it is involved in major litigation with a potential liability of ₹50 crore (which could significantly affect its financial position). The auditor includes an EOM paragraph drawing attention to Note 12, without modifying the opinion — because the matter IS disclosed in the FS and is fundamental to users' understanding.

### Example 2

OM Example: A company's current year FS include comparative figures for the prior year, which were audited by a different auditor who has since retired. The current auditor includes an OM paragraph stating that the prior-year comparatives were audited by another auditor and expressing no opinion on those figures. This matter is not disclosed anywhere in the FS itself.

### Example 3

Distinguishing the two: Inventory overvaluation disclosed in FS notes → EOM. A limitation that the auditor resigned mid-year and was replaced → OM (about the audit, not the FS content).

⚠️ Common exam mistakes

Thinking EOM or OM paragraphs modify the audit opinion — they do NOT; they are additional communication alongside an otherwise unmodified or modified opinion.
Confusing EOM with Going Concern reporting — SA 570 has its own specific section requirement ('Material Uncertainty Relating to Going Concern'), which is distinct from a standard EOM paragraph.
Using an OM paragraph for matters that ARE in the FS — if the matter is disclosed in the FS, it must be EOM, not OM.
Forgetting that EOM requires the matter to be 'fundamental' — not every disclosed item warrants an EOM paragraph; it must rise to a level that is critical for understanding the FS.

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

Emphasis of Matter Paragraph: A paragraph included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users' understanding of the financial statements. Other Matter Paragraph: A paragraph included in the auditor's report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor's judgment, is relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report.

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Emphasis of Matter (EOM) vs. Other Matter (OM) Paragraphs in the Auditor's Report

Worked example

⚠️ Common exam mistakes