ISA 706 – Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report

3 Other matter paragraph

In rare cases auditor adds other matter paragraph in the auditor’s report if it is not prohibited by law or regulation. This is done when auditor is of the opinion that it is essential to convey a matter that is not disclosed or presented in the financial statements so that user can better understand:

1. Audit,
2. Auditor’s responsibility; and
3. Auditor’s report

In short, other matter paragraph is:

1. About matters other than presented or disclosed in the financial statements
2. About aiding user’s understanding of audit, auditor’s responsibility and auditor’s report
3. Added only if it is not prohibited by relevant laws or regulations

Other matter paragraph is included in auditor’s report immediately after opinion paragraph and any other emphasis of matter paragraph (if any).

It might be added elsewhere in auditor’s report if other matter paragraph is relevant to other reporting responsibilities

The following examples and cases are mentioned in different International Auditing standards where other matter paragraph may be used:

In case non-compliance is identified and management and those charged with governance is not taking remedial actions. In such case if auditor is not allowed to withdraw from audit engagement then as an alternative course of action auditor include other matter paragraph in auditor’s report to highlight non-compliance

In case a new or amended audit report has been issued after the discovery of subsequent events and also when management has restricted to amend the financial statements in this regard and law does not prohibit management from such restriction.

In situations where auditor is unable to withdraw due to limitation on scope of his work placed and has restricted him from obtaining sufficient appropriate audit evidence. In this case he can add other matter paragraph explaining the reasons why withdrawal was not possible.

In cases where auditor is engaged to report on two different sets of financial statement where each one is prepared under different general purpose framework.

Where financial statements are prepared for specific purpose meant for specific users then auditor shall add other matter paragraph highlighting the fact that such financial statements are not meant for general users even if such financial statements are prepared under general purpose financial reporting framework

4 Communication with those charged with governance

If auditor expects that emphasis of matter or other matter paragraph will be added to auditor’s report then auditor shall communicate such expectation with those charged with governance and also discuss the proposed wordings of such paragraph(s).