Emphasis of Matter and Key Audit Matters in Australia 2026: What Businesses Must Know About Auditor Reporting

When an auditor signs off on a company's financial statements, the audit report is far more than a simple pass or fail. For Australian businesses, understanding the structure of an audit report — particularly the use of Emphasis of Matter and Key Audit Matters paragraphs — is essential for interpreting what your auditor is communicating and why it matters for investors, lenders, and regulators.

Understanding Auditor Reporting in Australia

Australian auditing standards, issued by the Auditing and Assurance Standards Board (AUASB), govern how auditors communicate their findings. The two most significant reporting mechanisms beyond the standard opinion are Emphasis of Matter (EOM) paragraphs and Key Audit Matters (KAM) disclosures.

These are not interchangeable. Each serves a distinct purpose and carries different implications for the entities being audited and the users of financial statements.

What Is an Emphasis of Matter Paragraph?

An Emphasis of Matter paragraph is included in an audit report when the auditor draws attention to a matter that is already appropriately disclosed in the financial statements but is of such fundamental importance that users need to understand it. The auditor's opinion is not modified — the financial statements are still considered to present fairly — but the matter is highlighted for emphasis.

Common triggers for an EOM paragraph in Australia include significant uncertainty about an entity's ability to continue as a going concern, a change in accounting policy with a material effect, or a subsequent event that fundamentally affects the financial statements.

What Are Key Audit Matters?

Key Audit Matters are required under ASA 701 Communicating Key Audit Matters in the Independent Auditor's Report for audits of listed entities and, increasingly, for other public interest entities. KAMs are those matters that, in the auditor's professional judgement, were of most significance in the audit of the financial statements for the current period.

Unlike an EOM paragraph, a KAM does not necessarily signal a problem. It communicates where the auditor focused the most effort and why — providing transparency into the audit process itself.

Key Considerations: What Businesses Must Understand

For directors, audit committee members, and senior management, understanding the distinction between these reporting mechanisms is critical for governance and stakeholder communication.

• EOM paragraphs signal heightened risk — While the opinion remains unmodified, an EOM paragraph alerts stakeholders to a matter that could significantly affect their decisions. Lenders and investors pay close attention to these disclosures.
• KAMs provide audit transparency — They explain where the auditor concentrated their work, which areas required the most judgement, and what procedures were applied. This helps users assess the rigour of the audit.
• Going concern is a recurring focus — ASIC's 2026–27 audit surveillance program has specifically flagged going concern assessments as a priority area. Auditors are expected to apply heightened scrutiny to management's assumptions about an entity's ability to continue operating.
• Impairment and revenue recognition are common KAMs — These areas involve significant management judgement and estimation uncertainty, making them frequent subjects of KAM disclosure in Australian audit reports.
• Climate-related disclosures are emerging — For Group 1 entities subject to mandatory sustainability reporting under AASB S2, auditors are now required to consider climate-related financial information as part of their audit scope.

Common Mistakes and Red Flags

Many Australian businesses misinterpret what these audit report paragraphs mean — or fail to appreciate their significance until a problem arises.

• Treating an EOM as routine — An Emphasis of Matter paragraph is not a standard feature of every audit report. Its presence signals that the auditor has identified something material enough to draw to users' attention. Boards should treat it as a prompt for action or enhanced disclosure.
• Confusing EOM with a qualified opinion — A qualified opinion means the auditor has found a material misstatement or limitation of scope. An EOM paragraph does not modify the opinion. Conflating the two can lead to unnecessary alarm or, conversely, insufficient concern.
• Ignoring KAM disclosures in investor communications — If your auditor has identified a KAM around revenue recognition or asset valuation, investors and analysts will scrutinise those areas. Failing to address KAMs proactively in your investor relations communications can create unnecessary uncertainty.
• Inadequate preparation for going concern assessments — ASIC has found that some entities provide insufficient evidence to support management's going concern conclusions. Auditors are required to challenge these assessments rigorously, and businesses that cannot provide robust supporting documentation face the risk of a modified opinion or an EOM paragraph.
• Underestimating the impact on financing — Lenders and credit rating agencies routinely review audit reports. An EOM paragraph or a KAM relating to debt covenants or liquidity can trigger covenant reviews or affect credit terms.

Australian Regulatory Context

The regulatory framework governing auditor reporting in Australia is robust and has been strengthened in recent years.

AUASB Standards: The AUASB issues Australian Auditing Standards (ASAs) that are aligned with International Standards on Auditing (ISAs). ASA 706 governs Emphasis of Matter and Other Matter paragraphs, while ASA 701 governs Key Audit Matters for listed entities.

ASIC Oversight: ASIC conducts annual audit file reviews as part of its audit quality surveillance program. In 2026–27, ASIC has confirmed it will review 25 audit files, with a focus on going concern assessments, impairment testing, revenue recognition, and expected credit losses. ASIC has the power to refer matters to the Companies Auditors Disciplinary Board (CADB) where audit quality concerns are identified.

ASQM 1 and ASQM 2: The Australian Standards on Quality Management require audit firms to maintain robust quality management systems and conduct engagement quality reviews for high-risk audits. These standards directly affect the rigour with which KAMs and EOM paragraphs are identified and documented.

Sustainability Reporting Assurance: From 2026, Group 1 entities must have their sustainability reports assured under ASSA 5000 and ASSA 5010. Auditors are now required to consider whether climate-related disclosures are consistent with the financial statements — a new dimension of auditor reporting that is rapidly evolving.

Registered Company Auditors (RCAs): Only ASIC-registered company auditors may sign audit reports for companies required to have their financial statements audited under the Corporations Act 2001. ASIC monitors RCA compliance with annual lodgement obligations and professional standards.

Questions to Ask Your Auditor: A Practical Checklist

If you are a director, CFO, or audit committee member, these questions will help you engage meaningfully with your auditor about their reporting obligations.

• Will there be an Emphasis of Matter paragraph in our audit report? If so, what is the matter being emphasised, and what additional disclosures should we consider?
• What are the Key Audit Matters for this year's audit? How do they compare to prior years, and what does any change signal?
• How has the auditor assessed our going concern position? What evidence did management provide, and was it sufficient to support the conclusion?
• What areas of significant judgement or estimation uncertainty did the auditor identify? Are these adequately disclosed in the financial statements?
• Has the auditor identified any matters that could affect our sustainability reporting assurance? For Group 1 entities, how is the auditor approaching AASB S2 consistency checks?
• What remedial actions, if any, has ASIC required from our audit firm following previous inspections? How have those been addressed?
• Is our auditor independent? Have any independence threats been identified and appropriately safeguarded?

How MyMoney® Can Help

Choosing the right auditor is one of the most consequential governance decisions an Australian business can make. The quality of your audit report — including how Emphasis of Matter and Key Audit Matters are identified and communicated — depends entirely on the expertise and rigour of the auditor you engage.

MyMoney® connects Australian businesses with qualified, ASIC-registered auditors who understand the current regulatory environment, ASIC's 2026–27 surveillance priorities, and the evolving requirements around sustainability assurance. Whether you need a statutory audit, an SMSF audit, or assurance over your sustainability disclosures, our marketplace makes it straightforward to find and compare experienced professionals.

Post a Brief to describe your audit requirements and receive proposals from qualified auditors. Or Browse Auditors to explore professionals with the specific expertise your business needs.

Understanding what your auditor is telling you — and why — is the foundation of sound financial governance. MyMoney® is here to help you find the right professional to guide you through it.