Key Audit Matters 2

ACCA-AFA-IAI-IAPI Joint Webinar 2020
What You Need To Know

About Implementing
Key Audit Matters (KAM)
Presented by:
Kusumaningsih Angkawidjaja
Indonesian Auditing and Assurance Standards Board 1 – IAPI
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© 2020 Institut Akuntan Publik Indonesia (IAPI)
Enhanced Auditor’s Report (EAR) &
Key Audit Matters (KAM)
Effective date and

EAR KAM applicability
Without changing the The new requirements

This is the most
scope of an are expected to be
significant change in
independent audit, the effective for the
EAR – the auditor
new standard (SA 700 financial statements
needs to include
series) open the door audits for the periods
descriptions of KAM in
for the auditor to give beginning on or after
the auditor’s report (SA
users more insight into January 1, 2022
701 - ED issued in Dec
the audits and improve (starting with listed
‘19).
transparency. entities).
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Applicability to Implement KAM – According ISA
701
The new
requirements are
expected to be
effective for the
For audits of When we are audit financial
complete set of otherwise required When we otherwise statements for the
general purpose by law or decide to. periods beginning
financial statements regulation. on or after January
of listed entities. 1, 2022 (starting
with listed
entities).
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The changes in EAR in a Nutshell
• The Audit opinion will start the auditor’s • More explicit statement about the auditor’s
report. independence.
• Auditors of listed companies must report • Enhanced description of management’s
KAM. responsibilities for assessing the entity’s
• Separate section when a material ability to continue as a going concern; the
uncertainty exists related to the entity’s use of the going concern basis is
ability to continue as a going concern appropriate.
and is adequately disclosed in the • New description of the auditor’s
financial statements. responsibilities to conclude on the
• Separate section when an entity prepares appropriateness of management’s use of the
other information (ISA 720) going concern basis of accounting.
• Identification of TCWG, when applicable.
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What Are The Key Audit Matters (KAM)?
Key Audit Matters are those matters, that in the auditor’s professional judgment
were of most significance in the audit of the entity’s financial statements of the
current period.
Key Audit Matters are selected from matters communicated with those charged
with governance and placed in a separate section of the auditors’ report.
Determination of KAM is auditor's judgement and KAMs are expected to be

entity-specific and specific to the audit that was performed.
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Determination of KAM – Step by Step
Step 1
Matters that were

Step 2
Step 3
KAM
communicated Matters that
with those required Matters of most
charged with significant auditor significance to
governance. attention in The auditor is required to take into account the
the audit.
performing the following in making this determination:
audit. • areas of higher assessed risk of material
misstatement, or significant risks.
• significant auditor judgments relating to areas
in the financial statements that involved
significant management judgment, including
In certain limited circumstances, if there are no KAM to accounting estimates identified as having high
communicate, a statement to that effects is required to be estimation uncertainty.
included in the auditor’s report and communicated to • effect on the audit of significant events or
TCWG. transactions that occurred during the period.
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KAMs are not:
A substitute of the
preparer’s view
reported in the KAMs are not a
financial statements. substitute for expressing
a modified opinion.
It is important to note that communicating KAMs in the auditor’s report is in the context of the
auditor having formed an opinion on the FS as a whole – not a separate opinion on individual
matters reported in KAMs.
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Value of Communicating KAMs
Help better communication between the auditors and those charged with
governance, this in turn contributes to better governance
Opens up transparency on the audit process relating to the auditors

professional judgment
Contribute to higher audit quality
Contribute to higher quality financial reporting
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Most frequently reported KAMs
Impairment of Revenue
goodwill Valuation of PPE
Recognition
Investment
Acquisition Investment Capitalization
properties
Overall, it is apparent that those audit matters that are judgmental, involve estimates,
uncertain and/or complex, are the most frequently reported KAM.
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Interesting KAM Topics
Complex IT
systems and
controls
Taxation –
uncertainty
over income
tax
treatment
IFRIC
23/ISAK 34
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Exceptions for Reporting KAM
Law or regulation precludes public disclosures about the matter.
Adverse consequences of reporting KAM would reasonably be expected to

outweigh the public interest benefits of such communication.
Disclaimer of opinion and Adverse opinion.
No matters that required significant auditor attention (very rare situation).
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How are KAM communicated and described?
• KAM is communicated in a separate section of the auditors’ report under the heading “Key Audit
Matters”
• Start with the introductory language to state what KAM is and to emphasis that these matters were
addressed in the context of the audit of the financial statements as a whole, and in forming the auditor’s
opinion. The auditor does not provide a separate opinion on these matters.
• The auditor is required to described KAM in the auditor’s report as follows:
Financial Statement Note
Issue Audit Response
Disclosure
why the matter was considered to how the matter was reference to the related
be one of the most significant in addressed in the audit. financial statement note
the audit and therefore disclosure(s), if any.
determined to be a KAM.
The description of KAM is intended to be fact based and tailored to the company, informative, concise and
understandable to a non-auditor.
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ILLUSTRATION of KAM
Example: Information System – reported as KAM due to the heavily reliance on
complex, automated process.
Key Audit Matter

IT Systems and controls over financial reporting
The Company’s key financial accounting and reporting processes are highly depended on the
automated control over the Company’s information systems. As such, there is a risk that exist in
the IT control environment, including automated accounting procedures. IT dependent manual
controls and controls preventing unauthorized access to systems and data could result in the
financial accounting and reporting records being materially misstated. The IT systems and
controls, as they impact the financial reporting and reporting of transactions, is a key audit
matter and our audit approach could significantly differ depending on the effective operation of
the Company’s IT controls.
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EXAMPLES of KAM
How The Matter Was Addressed In Our Audit
We used our internal IT specialist to perform audit procedures to assess IT systems and
controls over financial reporting, which included the following:
• General IT controls design, implementation and operation:
Testing the sample of key controls over the information technology in relation to financial
accounting and reporting systems, including system access and system change
management, program development and computer operations.
• User access control operation:

Accessing the management evaluation of access rights granted to applicants relevant to
financial accounting and reporting systems and tested resolution of exceptions noted.
Assessing the operation effectiveness of controls over granting, removal and
appropriateness of access rights.
Testing specific application controls for key financial reporting controls.
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Financial Reporting Ecosystem 1/4
Who is affected by the Changes?
Audit Committee
Audit Committee are suggested to:
Support and Oversee financial reporting Consider whether disclosures

cooperate Engaging in early and open in the financial statements or
process of the listed entities
the dry-run. communication with auditors, elsewhere in the annual
more closely, especially the
particularly on key audit report and/or other investor
matters that could be key
matters issues. communications need
audit matters.
refreshing so that they are in
line with key audit matters.
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Investor
Be able to learn in
detail on the issues Investor will have Investor can
discussed between Know the audit access to information incorporate this
auditors, management procedures for each that was previously only information in the
and those charged with key audit matters. available in the evaluation of individual
governance, in relation Boardroom. company.
to key audit matters.
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Member of the Management Team
Management to revisit
It is important to note that the enhanced auditor's
the financial statements
Support and engage in reports will also include more detailed description
as KAM often directs
the dry-run. of the auditor's and management responsibilities
users to the note
with respect to the financial statements.
disclosures.
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Regulators
Regulators will have a greater

Regulators will be able to see
visibility on the areas which are
greater transparency and
most significance in the audit
independence about the audit
and how the auditors addressed
that was performed.
this matter.
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Getting Started!
Timeline and Implementation

Given the significance of the changes to the financial reporting process with respect to KAM and the
process should include the Auditor, management and the Audit Committee, having an implementation
process and timeline is critical to the successful implementation.
Example of an implementation process and timeline:
2022 year end

Immediately – 2021 year end 2022 year end
audit planning
Understand how audit – Dry-run 2022 year end audit – New
meeting – Plan
the changes affect of the new audit – Execute. auditors report
the entity.
for a smooth
standards. issued for the
transition.
first time.
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Key Takeaways for Smooth Implementation
Start early – discussion between auditor, management and AC at the soonest

opportunity.
Encourage the AC and auditors to undertake a dry- run.
Look out for consistency.
Pro-actively engage in the process.
Educate investors.
Make use of the available resources.
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Thank You
KA/fl
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ACCA-AFA-IAI-IAPI Joint Webinar 2020

What You Need To Know

Effective date and

Without changing the The new requirements

Determination of KAM is auditor's judgement and KAMs are expected to be

Matters that were

Opens up transparency on the audit process relating to the auditors

Contribute to higher audit quality

Contribute to higher quality ﬁnancial reporting

Law or regulation precludes public disclosures about the matter.

Adverse consequences of reporting KAM would reasonably be expected to

Disclaimer of opinion and Adverse opinion.

No matters that required signiﬁcant auditor attention (very rare situation).

Key Audit Matter

• User access control operation:

Who is affected by the Changes?

Audit Committee are suggested to:

Support and Oversee ﬁnancial reporting Consider whether disclosures

Who is affected by the Changes?

Who is affected by the Changes?

Member of the Management Team

Who is affected by the Changes?

Regulators will have a greater

Timeline and Implementation

Example of an implementation process and timeline:

2022 year end

Start early – discussion between auditor, management and AC at the soonest

Look out for consistency.

Pro-actively engage in the process.

Make use of the available resources.

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