## Learning Outcomes

By the end of this article, you will be able to describe when and how an auditor uses Emphasis of Matter and Other Matter paragraphs in the independent auditor’s report under ISA 706. You will distinguish these special paragraphs from modified audit opinions, understand their placement and wording, and identify scenarios that require their use. You will also relate these requirements to common ACCA AA exam questions on audit reporting.

## ACCA Audit and Assurance (AA) Syllabus

For ACCA Audit and Assurance (AA), you are required to understand the auditor’s report structure, audit modifications, and the specific use of Emphasis of Matter and Other Matter paragraphs under ISA 706. Ensure you revise:

- The elements and layout of the independent auditor’s report and its purpose.
- When and how to issue unmodified vs modified audit opinions (qualified, adverse, disclaimer).
- When to use Emphasis of Matter and Other Matter paragraphs and how these differ from modifications to the opinion (ISA 706).
- Reporting implications and examples of Emphasis of Matter and Other Matter paragraphs for exam scenarios.
- The impact of audit findings—such as significant subsequent events or uncertainties—on audit reporting.

## Test Your Knowledge

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, look more closely at that area during your revision._

1. What is the main difference between a modified audit opinion and an Emphasis of Matter paragraph?
2. Which type of matter should be addressed in an Emphasis of Matter paragraph?
   a) Fundamental uncertainty adequately disclosed in the financial statements
   b) Material misstatement with inadequate disclosure
   c) Auditor’s inability to obtain sufficient appropriate evidence
   d) Compliance with local reporting requirements only
3. State two scenarios where an Other Matter paragraph may be appropriate in an auditor’s report.
4. True or false? Including an Emphasis of Matter paragraph modifies the audit opinion.

## Introduction

ISA 706 requires the auditor to use special paragraphs—Emphasis of Matter and Other Matter—to highlight issues in the auditor’s report that are important to users, but which do not affect the audit opinion itself. These paragraphs draw attention to key disclosures or auditor communications that are not modifications to the opinion. Being able to correctly identify when and how to use these paragraphs, including exact placement and wording, is essential for both exam performance and professional audit work.

> **Key Term: Emphasis of Matter paragraph**
> A section in the auditor’s report that refers to a matter appropriately disclosed in the financial statements that, in the auditor’s judgement, is fundamental to users’ understanding, but does not require modification of the audit opinion.
> **Key Term: Other Matter paragraph**
> A section in the auditor’s report that refers to a matter not presented or disclosed in the financial statements, but which the auditor finds relevant to users’ understanding of the audit or the auditor’s responsibilities.

### Purpose and Context

Standard audit reports provide an opinion as to whether the financial statements give a true and fair view (or are fairly presented) in accordance with the applicable framework. Occasionally, due to significant—but not misstated—matters, the auditor needs to draw attention to specific disclosures or audit-related issues for user clarity.

Emphasis of Matter and Other Matter paragraphs serve this function, spotlighting information without representing a qualification or modification of the audit opinion. Their use is guided by ISA 706 and they are inserted at specific locations within the auditor’s report for clarity.

### When to Use an Emphasis of Matter Paragraph

An Emphasis of Matter paragraph is required when:

- The auditor considers a matter already adequately disclosed in the financial statements is fundamental to users’ understanding.
- The auditor’s opinion is **not modified** (i.e., there is no material misstatement or limitation of scope).

Typical examples include:

- A major subsequent event after the reporting period (e.g., fire, litigation) that has been properly disclosed.
- An outstanding uncertainty regarding legal outcomes or tax disputes already disclosed in the notes.
- Financial statements prepared on a non-going concern basis, with clear disclosure.

The Emphasis of Matter paragraph is placed after the Basis for Opinion section, or before or after the Key Audit Matters section where applicable, based on the auditor’s judgement as to the relative significance of the information.

> **Exam Warning:**
> An Emphasis of Matter paragraph does not modify or qualify the audit opinion. It may only be used when adequate disclosure is present—if not, the auditor must modify the opinion instead.

### When to Use an Other Matter Paragraph

An Other Matter paragraph is used to communicate matters that:

- Are not required to be presented or disclosed in the financial statements.
- In the auditor’s judgement, are relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.

Typical uses include:

- To communicate that the auditor’s report is intended solely for the intended users and should not be distributed to or used by other parties.
- To explain why the auditor has not resigned, when a pervasive inability to obtain sufficient appropriate evidence is imposed by management but the auditor is unable to withdraw from the engagement due to legal restrictions.
- To communicate audit planning and scoping matters where laws or regulations require.
- To report where the entity prepares one set of accounts in accordance with one general purpose framework and another set in accordance with a different framework, and the auditor is engaged to report on both sets.
- To state that prior period financial statements were audited by another auditor who expressed an unmodified opinion.

The Other Matter paragraph typically appears just after the Key Audit Matters and Emphasis of Matter sections, or elsewhere as appropriate depending on its subject. Where it relates to other reporting responsibilities, it may be included in the Report on Other Legal and Regulatory Requirements section.

> **Test Tip:**
> In exam scenarios, decide first whether the matter is already disclosed in the financial statements. If it is disclosed and fundamental, consider Emphasis of Matter; if it is not disclosed but helps users understand the audit or report, consider Other Matter.

### Structure and Placement

- Emphasis of Matter: After Basis for Opinion. Heading is “Emphasis of Matter.”
- Other Matter: Directly after Emphasis of Matter/Key Audit Matters or elsewhere before the signature/date, with heading “Other Matter.”

Both paragraphs must clearly state the matter being highlighted and, for Emphasis of Matter, make reference to the appropriate note/disclosure in the financial statements.

### Worked Example 1.1

**Situation:** Cosmos Ltd had a major warehouse fire after the reporting date. This event is fully disclosed in the notes—management describes the loss, insurance outcome uncertainty, and financial impact.

Exam-style Question:
Should the auditor include an Emphasis of Matter paragraph in the audit report? If so, where, and what should it say?

> **Answer:**
> Yes. Since the fire occurred after the reporting date, and the event is disclosed but does not cause a misstatement, the auditor should add an Emphasis of Matter paragraph after the Basis for Opinion. The paragraph should reference the note in the financial statements describing the event and clarify that the opinion is not modified.

### Worked Example 1.2

Situation:
Last year’s financial statements were audited by a different firm. This year, the current auditor presents the report on comparatives. The prior auditor’s opinion was unmodified.

Exam-style Question:
How should the current auditor communicate this in the audit report?

> **Answer:**
> Insert an Other Matter paragraph stating that the prior period’s financial statements were audited by another auditor, who issued an unmodified opinion, with the date of that opinion.

### Distinguishing Emphasis of Matter, Other Matter, and Modified Opinions

It is critical not to confuse these paragraphs with modifications to the audit opinion.

> **Key Term: Modified audit opinion**
> An audit opinion that is changed from an unmodified opinion because there is a material misstatement or the auditor is unable to obtain sufficient appropriate audit evidence.

Key differences include:

![Auditor’s report sequencing with Opinion, Basis for Opinion, Key Audit Matters, Emphasis of Matter, Other Matter, and reporting responsibilities.](https://static.pastpaperhero.com/images/acca-aa-auditors-report-and-modifications-emphasis-of-matter-and-other-matter-isa-706_00.png)

_Emphasis of Matter and Other Matter paragraphs are positioned after Basis for Opinion and, when relevant, after Key Audit Matters._

|           | Modified Opinion (Qualified/Adverse/Disclaimer) | Emphasis of Matter                     | Other Matter                                            |
| --------- | ----------------------------------------------- | -------------------------------------- | ------------------------------------------------------- |
| Wording   | Opinion is modified/qualified                   | Opinion is NOT modified                | Opinion is NOT modified                                 |
| Reason    | Material misstatement OR lack of evidence       | Fundamental matter **disclosed** in FS | Auditor communication NOT disclosed in FS               |
| Placement | Opinion + Basis for Opinion sections            | After Basis for Opinion                | After Emphasis of Matter/Key Audit Matters or elsewhere |

> **Exam Warning:**
> Do not use an Emphasis of Matter or Other Matter paragraph to avoid a qualified, adverse, or disclaimer of opinion where the facts require a modified opinion.

### Practical Guidance: Wording and Best Practice

Emphasis of Matter example (after Basis for Opinion):
“We draw attention to Note X of the financial statements, which describes [the matter]. Our opinion is not modified in respect of this matter.”

Other Matter example:
“The financial statements of the company for the year ended 31 December 20X3 were audited by another auditor who expressed an unmodified opinion on those statements on 30 April 20X4.”

## Summary

Emphasis of Matter and Other Matter paragraphs are essential reporting tools for auditors to highlight important matters to users without modifying the audit opinion. They are used sparingly—only when necessary and after confirming disclosure is adequate or when user understanding would otherwise be incomplete. Accurate use and wording are essential for meeting both professional requirements and ACCA exam standards.

## Key Point Checklist

_This article has covered the following key knowledge points:_

- The difference between modified opinions and Emphasis of Matter/Other Matter paragraphs (ISA 706).
- Scenarios that require an Emphasis of Matter, including the wording and correct location in the auditor’s report.
- When and how to use an Other Matter paragraph.
- Common examples and correct wording for each type of special paragraph.
- The need for matters to be adequately disclosed for Emphasis of Matter use.
- Importance of not using these paragraphs to disguise misstatements or lack of evidence.
- Typical exam pitfalls and how to avoid them.

## Key Terms and Concepts

- Emphasis of Matter paragraph
- Other Matter paragraph
- Modified audit opinion


Auditor’s report and modifications - Emphasis of Matter and Other Matter (ISA 706)