ISA 701 KEY AUDIT MATTERS

WHAT IS KAM
Those matters that in auditor’s professional judgement were of most significance in the
audit of FS of Current period (even if comparative FS are presented). Key audit
matters are selected from matters communicated to those charged with
governance

PURPOSE OF KAM
The purpose of communicating KAM is to enhance the communicative value of
the auditor’s report by providing greater transparency about the audit that
was performed.
Communicating KAM provides additional information to intended users of the
financial statement to assist them in understanding those matters that in the
auditor’s professional judgement were of most significance in the audit of FS of
the current period

APPLICABILITY OF KAM
 KAM applies to audit of complete set of general purpose financial
statements of listed entities
 Circumstances when the auditor otherwise decides to communicate key audit
matters in the auditor’s report.
 when the auditor is required by law or regulation to communicate key
audit matters in the auditor’s report

KAM IS NOT THE SUBSTITUE FOR:

Communicating key audit matters in the auditor’s report is not:
(a) A substitute for disclosures in the financial statements that the
applicable financial reporting framework requires management to
make, or that are otherwise necessary to achieve fair presentation;
(b) A substitute for the auditor expressing a modified opinion when
required by the circumstances of a specific audit engagement in
accordance with ISA 705 (Revised);1
(c) A substitute for reporting in accordance with ISA 570 (Revised)
when a material uncertainty exists relating to events or conditions
that may cast significant doubt on an entity’s ability to continue as a
going concern; or
(d) A separate opinion on individual matters.
 SCOPE
Objective
 Deals with auditors responsibility to
communicate KAM in the auditor’s
report

 Communicate those matters by

 To determine KAM describing them in auditors
report

Matters that required KAM = matters of most

Matters communicated with significance in the audit of the
those charged with governance significant auditor attention
current period

Areas of Significant auditor Effect on the audit The nature and extent of
higher judgments relating to of significant events communication with those
assessed risk areas in the financial or transactions that charged with governance provides
of material statements that occurred during the an indication of which matters are
misstatement, involved significant period. of most significance. Other
or significant management consideration in determining the
risks. judgment, including relative significance of a matter
accounting estimates include
identified as having
high estimation
uncertainty.

Importance of the Nature of the

Nature and matter to intended underlying Nature and
severity of users’ accounting policy materiality of
Nature and
difficulties in Severity of understanding of or complexity or corrected and
extent of applying audit any control
audit effort the financial subjectivity in uncorrected
procedures or deficiencie statements as a management’s misstatements
needed to
obtaining s related to whole, in particular selection of an related to the
address the
relevant and the matter. its materiality to appropriate matter.
matter.
reliable audit the financial accounting
evidence. statements. policy.
 How to communicate KAM

Introductory Paragraph Description of Individual KAM

The auditor shall describe each key audit  Include a reference to the related
matter, using an appropriate disclosure if any;
subheading, in a separate section of the  Why the matter was considered to be
one of most significance in the audit
auditor’s report under the heading
“Key Audit Matters,” The introductory and therefore determined to be a key
audit matter; and
language in this section of the auditor’s report
shall
 How the matter was addressed in the
state that audit

 Key audit matters are those matters that, in the auditor’s

professional judgment, were of most significance in the
audit of the financial statements [of the current period];and
 These matters were addressed in the context of the audit
of the financial statements as a whole, and in forming the
auditor’s opinion thereon, and the auditor does not provide a
separate opinion on these matters.

EXCEPTION TO COMMUNICATE KAM

The auditor shall describe each key audit matter in the auditor’s report unless:
 Law or regulation precludes public disclosure about the matter; or
 In extremely rare circumstances, the auditor determines that the matter should not be communicated in the auditor’s
report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication. This shall not apply if the entity has publicly disclosed information about the
matter
 INTERACTION OF KAM WITH OTHER ELEMENTS OF AUDIT REPORT
Qualified Opinion OR Material
Uncertainty Relating to Going
Concern
Qualified opinion and or Material
uncertainty relating to going concern
are by their nature Key audit matters.
Therefore these matters shall not
described in the Key audit matters
sections. Rather the auditor shall:
 Report on these matters in
accordance with applicable ISA
 Include a reference to the
Basis for Qualified (Adverse)
Opinion or the Material
Uncertainty Related to Going
Concern section(s) in the Key
Audit Matters section – ( In
addition to the matter as
described in basis of qualified
opinion section or material
uncertainty relating to going
concern section we have
determined the matters
described below the key audit
matters to be communicated in
our report)
Even if No kam
identified auditor needs
to communicate this
fact in the auditors
report.
Adverse opinion Disclaimer opinion
When the auditor express a qualified
opinion or adverse opinion, Unless required by law or
communicating other matter key audit regulation, when the auditor
matters would still be relevant to disclaims an opinion on the
enhancing intended users’ understanding financial statements, the
of the audit, and therefore the auditor’s report shall not
requirements to determine key audit include KAM section in
matters apply. accordance with ISA 701
However, as an adverse opinion is
expressed in circumstances when the
auditor has concluded that
misstatements, individually or in the
aggregate, are both material and
pervasive to the financial statements
Depending on the
If one or more matters
significance of the other than the matter(s)
matter(s) giving rise to an giving rise to an adverse
adverse opinion, the auditor opinion are determined
may determine that no to be key audit matters,
other matters are key audit it is particularly important
matters. that the descriptions of such
Except for the matters other key audit matters do
not imply that the financial
described in the basis for
adverse opinion section, statements as a whole are
we have determined that more credible in relation to
there are no other KAM to those matters than would be
communicate in our report appropriate in the
circumstances, in view of the
adverse opinion
 ADVANTAGES OF COMMUNICATION TO THOSE CHAGRED WITH GOVERNANCE
 It will help to have a two way robust two way dialogues about KAM at the time the financial statement are being
finalized for issuance
 Enable them to be aware of the KAM that the auditors intend to communicate in the auditor’s report, and provides
them with an opportunity to obtain further clarification where necessary
 Communication with TCWG recognize their important role in overseeing the financial reporting process

The auditor shall communicate with those charged with governance

What matters to communicate?

If applicable, depending on the facts and circumstances of the

Those matters that auditor has entity and the audit, the auditors determination that there are
determined to be KAM no KAM to communicate in the auditor’s report

DOCUMENTATION
 The matters that required significant auditor’s attention and the rationale for the auditor’s determination as to
whether or not each of these matters is a key audit matter
 Where applicable, the rationale for the auditor’s determination that there are no key audit matters to communicate in
the auditor’s report
 Where applicable, the rationale for the auditor’s determination not to communicate in the auditor’s report a matter
determined to be a key audit matter
Qualified opinion due to scope limitation
Adverse opinion
MURTGC
Winter 2016