CPA AUD | Audit and Attestation | Emphasis of Matter Other Matter
Channel: LetsLearn Global
Date: 08/03/2024

Emphasis of Matter (EOM) paragraphs and Other Matter (OM) paragraphs.
EOM and OM paragraphs serve to enhance transparency and provide context to users of the financial statements. They are essential tools for auditors to communicate effectively for the audits of non-issuers.
Emphasis of Matter (EOM) Paragraphs:
• Purpose: EOM paragraphs are included in the auditor’s report to highlight specific matters that are fundamental to users’ understanding of the financial statements.
• When Used:
o To draw attention to significant uncertainties, such as pending litigation, regulatory investigations, or events that may affect the entity’s ability to continue as a going concern.
o To emphasize material misstatements that have been corrected or disclosed in the financial statements.
o To address significant limitations in the scope of the audit.
• Disclosure Items:
o Going Concern Assumption: If there are doubts about the entity’s ability to continue operating, the auditor may emphasize this matter.
o Significant Litigation or Regulatory Issues: For instance, ongoing lawsuits or investigations.
o Material Misstatements: Corrected errors or omissions that are material to the financial statements.
• Example:
o Suppose a company faces a lawsuit that could significantly impact its financial position. The auditor would include an EOM paragraph explaining the situation and its implications.
Other Matter (OM) Paragraphs:
• Purpose: OM paragraphs provide additional information relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.
• When Used:
o To communicate matters that are not fundamental but still important for context.
o To address compliance with legal or regulatory requirements.
o To provide clarifications related to the audit process.
• Disclosure Items:
o Changes in Accounting Policies: If the entity has adopted new accounting standards.
o Related-Party Transactions: Details about transactions with related parties.
o Noncompliance with Laws or Regulations: Instances where the entity did not comply with legal requirements.
o Significant Events After the Reporting Period: Events occurring after the financial statements’ date but before the audit report issuance.
• Example:
o The auditor might include an OM paragraph explaining that the company changed its accounting policy for revenue recognition due to adopting a new standard.
Key differences between Emphasis of Matter (EOM) paragraphs and Other Matter (OM) paragraphs in the context of audit reports:
1. Purpose:
o EOM Paragraphs:
 Highlight specific matters that are fundamental to users’ understanding of the financial statements.
 Address significant uncertainties, material misstatements, or limitations in the audit scope.
o OM Paragraphs:
 Provide additional information relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.
 Address matters that are important but not fundamental.
2. Content:
o EOM Paragraphs:
 Focus on specific issues such as going concern, litigation, or material misstatements.
 Typically relate to matters disclosed in the financial statements.
o OM Paragraphs:
 Cover a broader range of topics, including changes in accounting policies, related-party transactions, and noncompliance with laws.
 May not directly impact the financial statements but provide context.
3. Significance:
o EOM Paragraphs:
 Address significant matters that require users’ attention.
 Often related to material uncertainties or events.
o OM Paragraphs:
 Address relevant but less critical matters.
 Provide context or clarification.
4. Examples:
o EOM Example:
 If a company faces a significant lawsuit, the auditor might include an EOM paragraph explaining the situation’s impact on the financial statements.
o OM Example:
 The auditor might include an OM paragraph to clarify changes in accounting policies due to adopting new standards.



Explanatory Paragraph(Issuers)
An explanatory paragraph is a paragraph included in the auditor's report that is required by GAAS, or is included at the auditor's discretion, and that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's professional judgment, is of such importance that it is fundamental to users' understanding of the financial statements. If the auditor concludes there is substantial doubt, he should include an explanatory paragraph, including an appropriate title, in his audit report to reflect his conclusion.

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