Emphasis of matter and other matter paragraphs
When an auditor adds an emphasis of matter or other matter paragraph under ISA 706, how each differs from a modified opinion, and how to word them.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
"Can we not just put an emphasis of matter in?" is a question many audit partners have heard from a client, and sometimes from their own team, when the evidence for a balance is thin or the directors will not change a disclosure. The answer is no, and the reason goes to the heart of what these paragraphs are. An emphasis of matter does not modify the opinion. It cannot fix a problem with the statements or with the evidence; it can only point the reader to something the statements already say properly.
ISA 706 (Revised) governs two kinds of additional paragraph in the auditor's report: the emphasis of matter and the other matter. Both are useful. Both lose their value when used to soften a conclusion that should have been a modification.
What each paragraph does
| Emphasis of matter | Other matter | |
|---|---|---|
| Refers to | A matter appropriately presented or disclosed in the statements | A matter not presented or disclosed in the statements |
| Purpose | Draw attention to something fundamental to users' understanding of the statements | Explain something relevant to users' understanding of the audit, the auditor's responsibilities or the report |
| Condition | The matter would not require a modified opinion, and is not a key audit matter | Not prohibited by law or regulation, and not a key audit matter |
| Effect on opinion | None; the report states the opinion is not modified in respect of the matter | None |
The two conditions on an emphasis of matter are worth repeating. If the matter requires a modification under ISA 705, the auditor modifies; an emphasis of matter is not a substitute. If the matter is a key audit matter under ISA 701, it is reported as such; an emphasis of matter may still be used for a matter that is fundamental but was not a key audit matter.
Matters often emphasised
ISA 706 gives examples of when an emphasis of matter may be appropriate:
- an uncertainty about the future outcome of exceptional litigation or regulatory action;
- a significant event after the reporting date, such as a major acquisition, fire or flood, disclosed in the statements;
- early application, where permitted, of a new accounting standard with a material effect;
- a major catastrophe that has had, or continues to have, a significant effect on the entity's financial position.
Some other ISAs require an emphasis of matter in specific circumstances, for example when statements prepared under a special purpose framework are reported on under ISA 800.
One common confusion: a material uncertainty related to going concern, adequately disclosed, is not reported in an emphasis of matter paragraph. ISA 570 requires its own section with the heading "Material Uncertainty Related to Going Concern"; see the auditor's going concern evaluation.
The more emphases a report carries, the less each one means. Reserve them for matters a reader genuinely needs pointing to.
Other matter paragraphs in practice
Other matter paragraphs are less common in small-company reports, but several situations call for them:
- A prior year audited by another firm. Under ISA 710, where the auditor refers to the predecessor's report, an other matter paragraph states that the prior period was audited by a predecessor, the type of opinion expressed and the date of the report.
- A prior year not audited. ISA 710 requires an other matter paragraph stating that the corresponding figures are unaudited, which is the position when last year's statements were independently reviewed or compiled.
- Restriction on use or distribution, where the report is intended for specific users.
- The rare case where the auditor cannot withdraw despite a pervasive limitation imposed by management, and explains why the audit continued.
Placement and wording
An emphasis of matter goes in a separate section of the report with an appropriate heading that includes the words "Emphasis of Matter". It must refer clearly to the matter and to where the relevant disclosures can be found, and must state that the opinion is not modified in respect of it. An other matter paragraph goes in its own section headed "Other Matter" or another suitable heading. ISA 706 leaves the exact position to judgement, depending on the nature of the information and its significance relative to other elements of the report.
Wording should be short and factual. A good emphasis of matter says: here is the matter, here is the note that describes it, and our opinion is not modified. It does not restate the note at length, and it does not add the auditor's own information about the entity.
Drafting, consulting and previewing in Achekam
In Achekam, the engagement team drafts the auditor's report on standard ISA 700, 705, 706 and 701 wording, approval is refused while any bracketed placeholder remains, and only the engagement partner approves. The ISA 706 wording is a starting point: the matter, the note reference and, for a predecessor's audit, the type of opinion and report date must all be filled in, and an unfilled placeholder will stop approval.
On the working paper where the matter arose, staff can ask AI to draft a procedure's response or a conclusion, and a draft goes into the file only when a person saves it. The decision whether a paragraph is needed at all belongs to the team and the partner, not to a draft.
Where the team disagrees, for example over whether a matter is fundamental enough to emphasise, or whether a pending claim is really an emphasis or a qualification, staff can take a technical consultation from question to conclusion and closure, and record a difference of opinion with each party's position, escalation and resolution. Close it before approval.
ISA 706 requires the auditor to communicate with those charged with governance about an expected emphasis of matter or other matter paragraph and its proposed wording. The partner can send the client a read-and-comment preview link to the audit report, which the client opens without signing in; the link expires and can be revoked. That preview is a practical way to give the directors the proposed wording before the report is final. When a matter does require a modification instead, the choice between qualified, adverse and disclaimer is covered in qualified, adverse or disclaimer.
Questions to ask before adding a paragraph
- Is the matter properly presented and disclosed in the statements? If not, this is a modification question.
- Is it fundamental to users' understanding, or merely interesting?
- Is it a key audit matter, or a material uncertainty related to going concern with its own section?
- For an other matter, is the reference permitted by law, and is it about the audit or the report rather than the statements?
- Have those charged with governance seen the proposed wording?
The IAASB's page on ISA 706 (Revised) describes when and how an auditor adds emphasis of matter and other matter paragraphs to the report.
A useful test
Read the proposed paragraph and ask what the reader would lose if it were removed. If the answer is "nothing the note does not already say clearly", leave it out.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
