The world of finances is stuffed with complex procedures and terminologies, such as ‘Emphasis of Matter’ (EOM) and ‘Key Audit Matter’ (KAM). Both are mandatory for ensuring monetary transparency in an audit report. But what is the difference between EOM and KAM?
Emphasis of Matter (EOM)
An Emphasis of Matter (EOM) is something the auditor thinks the reader should be aware of. However, it is not a matter of significance. An EOM is added to the report without changing the auditor’s assessment to offer further details or context.
Read about the IRS & state audit representation.
Key Features of EOM
Importance
EOMs draw attention to issues that are deemed vital. However, they are not always substantial to the financial accounts,
Auditor’s Judgment
The auditor’s professional judgment is the basis for including an EOM.
Communication
The audit report serves as a vehicle for informing shareholders about EOMs.
Disclosure
EOMs are revealed in the auditor’s report after the auditor’s opinion.
Key Audit Matters (KAM)
A topic that the auditor deems most important during the audit of the current period’s financial accounts is a Key Audit Matter (KAM). These factors are seen to be crucial in determining the auditor’s assessment of the financial accounts.
KAMs are an indication of the auditor’s expert opinion of the areas where the financial statements are most likely to be materially misrepresented.
Key Features of KAM
Importance
KAMs are intrinsically crucial to financial accounts and audits.
Auditor’s Judgment
The auditor uses their professional judgment to choose which KAMs to use.
Communication
The audit report shares KAMs with the audit committee rather than the shareholders.
Disclosure
The auditor’s report reveals KAMs, which offer information on the areas the auditor deemed most crucial throughout the audit.
What is the Difference Between EOM and KAM?
This table is the easiest guide to learn what is the difference between EOM and KAM:
| Features | Emphasis of Matter (EOM) | Key Audit Matter (KAM) |
| Objective | Highlights important matter for user understanding | Identifies most significant audit areas |
| Essentiality | Not mandatory | Mandatory for listed entities |
| Impact on opinion | No impact on opinion | No impact on opinion |
| Location in report | Separate paragraph before or after KAM section | Separate section after basis for opinion |
When to Choose EOM Over KAM?
The context and the amount of risk involved in the audit are usually the most important factors in deciding between EOM and KAM.
When the auditor wishes to point out something important that is already clearly stated in the financial records, such as a lawsuit that is still going on or the effects of a natural catastrophe on operations, EOM is usually the right choice. It is most beneficial when there is no qualification requirement or to stress the auditor’s judgment.
EOM is a clear technique to ensure everyone knows what is happening without causing much trouble for small organizations or low-risk audits. It gives stakeholders peace of mind that the problem, albeit serious, will not alter the audit opinions.
How Regulatory Bodies View EOM and KAM?
The PCAOB and IAASB are two regulatory agencies with different views on EOM and KAM reporting. KAMs are required for certain types of audits for public companies, whereas EOMs are mostly optional.
Regulators impose KAMs to make audit reports more useful for communication. This means that auditors have to explain decisions that significantly impacted the audit. This fits with the bigger aim of making audits more open and building trust among stakeholders.
On the other hand, EOMs are not meant to replace KAMs. They are intended to work with them in certain situations that exclude making judgments. Auditors can create reports fulfilling compliance and transparency requirements if they know how regulators rank these tools.
The Bottom Line
Financial statement users must comprehend what is the difference between EOM and KAM. The former provides more background information for the user, while the latter sheds light on the auditor’s areas of interest. With the above-explained details about EOm vs. KAM, financial statements, and the audit process, they can fully grasp these ideas.
Contact L&Y Tax Advisors, LLC. to streamline your taxation and financial matters.
