ISA 706 - Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report

Question 1

ISA 706: EOM - Emphasis of Matter Paragraphs & OM - Other Matter Paragraphs in the Independent Auditor’s Report:

Answer 1

Additional Requirements Reporting:

EOM- Emphasis of Matter Paragraph conditions for inclusion:
> Information appears in the Financial Statements for the Current Period.
> Information appropriately Disclosed/ presented in the FS.
> The Auditor would not be Required to Modify the Opinion as a result of the matter.
> In the Auditor’s Judgement, it is important to the users to understand the FS.

Include EOM Paragraph in Audit Report if :
» The matter has Not been determined to be a KAM (ISA 701) to be communicated in the Auditor’s Report.

When we decide to include an EOM Paragraph in the Audit Report, it will appear or look like this:
1. Title
2. Addressee
3. AO - Auditor’s Opinion
4. BOO - Basis of Opinion
5. GC - Going Concern (ISA 570)
6. EOM - Emphasis of Matter ***
7. KAM - Key Audit Matters (ISA 701)
8. OI - Other information (ISA 720)
9. MR - Management’s Responsibilities
10. AR - Auditor’s Responsibilities
11. OR - Other Responsibilities
12. Signature of the Auditor
13. Place of the Signature
14. Date of the Audit Report

EOM - Reporting Requirements:
» Emphasis of Matter - Subsequent Events/ Changes in Accounting Policies.
Point to the item of the FS, I.e.
» We draw attention to Note X of the FS, which describes the effects of a fire in the Company’s production facilities.
» Our Opinion in Not Modified in respect of this matter.
Reason for Modification is stated in the:
» Basis of Opinion Paragraph.

Question 2

ISA 706: Other Matter Paragraph:

Answer 2

Other Matter Paragraph:
This is meant for:
» Matters Other than those presented or Disclosed in the Financial Statements.
» In the Auditor’s Judgement, is relevant to users’ understanding of the Audit, the Auditor’s responsibilities or the Auditor’s Report. Example, can talk about a branch which is not part or scope of the Audit.

Other Matter Paragraph:
* Does Not include:
» Information that the Auditor is prohibited from providing by law, regulation or other professional standards.
» Information that is required to be provided by Management.

Once we decide to include the OM - Other Matter Paragraph in our Audit Report, the Report will then look like this:
1. Title
2. Addressee
3. AO - Auditor’s Opinion
4. BOO - Basis of Opinion.
5. EOM - Emphasis of Matter
6. KAM - Key Audit Matters
7. OI - Other Information (ISA 720)
8. MR - Management’s Responsibilities
9. AR - Auditor’s Responsibilities
10. OM - Other Matter Paragraph ***
11. OR - Other Responsibilities
12. Signature of the Auditor
13. Place of Signature
14. Date of the Audit Report.

OM - Other Matter paragraph may be included in the Report on Other Legal and Regulatory Requirements section.

Thus EOM and OM are additional paragraphs that can be introduced to the Audit Report by the Auditor whenever necessary.

EOM only affects Information that is appropriately Disclosed in FS and just needs user’s attention as per Auditor’s Judgement.

On the other hand,
OM Paragraph include Matters Other than those presented or Disclosed in the FS but relevant to the user’s understanding of the Auditor’s Responsibility.

NB: Emphasis of Matter Paragraph is Not a Substitute for:
» A Modified Opinion in accordance with ISA 705.
» EOM Will not come for Disclosures in the Financial Statements that the applicable FRF requires Management to make.
» Reporting in accordance with ISA 570 - GC - Going Concern

Have successfully completed ISA 706 - EOM & OM paragraphs in the Independent Auditor’s Report.

Remember how the Audit Report looks like after incorporating the EOM and OM paragraphs:
1. Title
2. Addressee
3. Auditor’s Opinion
4. Basis of Opinion.
5. EOM - Emphasis of Matter
6. KAM - Key Audit Matters
7. OI - Other information (ISA 720)
8. MR - Management’s Responsibilities
9. Auditor’s Responsibilities
10. OM - Other Matter Paragraph
11. OR - Other Responsibilities
12. Signature of the Auditor
13. Place of the Signature
14. Date of the Audit Report.