What is an emphasis of matter paragraph in an audit report?
It is an extra paragraph that points readers to something already disclosed in the accounts that is fundamental to understanding them. It does not change the opinion. A going concern problem that is properly disclosed is now shown in a separate material uncertainty section instead.
Emphasis of matter (ISA 706). The auditor adds a paragraph drawing attention to a matter that is already presented or disclosed in the financial statements and is so important that users need to understand it. Examples: a major uncertainty about a lawsuit, or a significant event after year-end.
Key points
- The opinion remains unmodified. An emphasis of matter paragraph cannot be used instead of a qualified, adverse or disclaimer opinion.
- The matter must be properly disclosed in the notes. If it is not, the problem is a misstatement and may lead to a modified opinion instead.
- It sits in the report under its own heading.
Going concern (ISA 570 revised). If a material uncertainty about the company's ability to continue exists and is adequately disclosed, the auditor reports it in a separate section headed "Material Uncertainty Related to Going Concern" with an unmodified opinion, rather than as emphasis of matter. If the disclosure is inadequate, the opinion may be qualified or adverse.
Other matter paragraph. A separate type refers to something not in the accounts but relevant to understanding the audit, for example that the prior year was audited by another auditor.
What it means in practice. Readers such as banks pay attention to these paragraphs. They are not a failure of the audit, but they signal something to ask about.
Source note. These descriptions come from the IAASB's revised reporting standards, which Malaysian auditors apply.
Legal basis
- ISA 706 (Revised)
- ISA 570 (Revised)
- Companies Act 2016, s.266
Sources
Applies to 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- Does every Sdn Bhd in Malaysia need to be audited?Not every one, but audit is the default. Section 267(1) of the Companies Act 2016 requires a private company to appoint an auditor for each financial year, unless it qualifies for and elects the audit exemption set by SSM's Practice Directive 10/2024.
- What is audit exemption for private companies in Malaysia?Audit exemption lets an eligible private company choose not to appoint an auditor for a financial year. It rests on section 267(2) of the Companies Act 2016 and SSM Practice Directive 10/2024. The company still prepares and lodges unaudited financial statements.
- What are the audit exemption thresholds for a Sdn Bhd in 2026?For financial periods starting 1 January to 31 December 2026 (Phase 2), a private company must meet at least two of three tests: revenue up to RM2,000,000, total assets up to RM2,000,000, and no more than 20 employees. Each test covers the current and past two years.
- How do the 2025 to 2027 phases for audit exemption work?Practice Directive 10/2024 raises the audit exemption limits in three steps, based on when the financial period starts: 2025, 2026, and 2027 onwards. The final limits are RM3,000,000 revenue, RM3,000,000 total assets and 30 employees, reached for periods starting from 1 January 2027.
- How do I check if my Sdn Bhd qualifies for audit exemption?Pass at least two of three tests (revenue, total assets, employees) for the current financial year and the past two, using the limits for the phase your period falls in. Also confirm you are not an excluded company type, such as a subsidiary of a public company.