ISA 701 - Key Audit Matters Flashcards
ISA 701: Key Audit Matters:
KAM: These are the significant Matters in the Auditor’s Professional Judgement and these are considered to be very significant in the Audit during the Current Period.
Reporting KAM in Independent Auditor’s Report:
» After Basis for Opinion Paragraph, a separate heading is there I.e. KAM Paragraph.
» So, all the significant Matters that the Auditor needs to be introduced under this KAM section.
» For Listed entities: It is Mandatory to have the KAM section!
» For Government entities: (Required by Law or regulations): Mandatory.
» If the Auditor according to his Professional Judgement believes that there is any particular information that is significant and need to be communicated through KAM, then the Auditor needs to introduce the KAM Paragraph in his Audt Report.
NB: KAM is not a substitute for:
» Disclosures in the Financial Statements as required by applicable FRF.
» Giving modified Opinion as per ISA 705.
» Uncertainty relating to the Entity’s ability to continue as Going Concern as per ISA 570.
» It is not a separate Opinion on individual item.
KAM are those Matters which are communicated to TCWG, out of those Matters which are discussed with the TCWG, the Auditor will analyze which is most significant for the users and only those Matters needs to be included in KAM.
KAM enhance the communicative value of the Financial Statements.
THUMB RULE:
Auditor cannot write anything in KAM Paragraph unless it is out of those Matters which the Auditor has communicated with TCWG.
» Out of those Matters which are discussed with the TCWG, the Auditor will analyze which is most significant for the users and only those Matters needs to be included in KAM. High risk areas.
» Where management’s Judgement is involved, the Auditor needs to evaluate to identify any significant items which can be considered as KAM. Examples are High estimates by management can be Key Audit Matters.
» Certain matters affected the Audit Procedures, high attention needed and those Matters are so significant, they can be considered as KAM. Eg a new business was opened during the year or Accouting Policies changed.
ISA 701: How to Report KAM in the Audit Report:
Opinion
Basis for Opinion
Going Concern as per ISA 570
KAM. (In the current year.
Introductory lines: These are the matters which in the Auditor’s Judgement are considered to be most significant during the Audit of the current period. These are KAM in the context of the FS taken as a whole and we are not giving modified Opinion with respect to these matters.
When there is any material uncertainty existing regarding Entity’s ability to continue as Going Concern or Auditor giving modified Opinion, then the Auditor should not include those in KAM Paragraph.
When the Auditor gives Disclaimer of Opinion, then KAM should not be included in Audit Report.
Auditor must be kept in mind:
» If disclosure of the matter outweigh the Public Interest or detrimental, then the Auditor need not include such matters in KAM.
» If By any Law or regulation some matters are not to be Disclosed publicly, then the Auditor need not include such matters in KAM.
Listed Companies compulsory include KAM:
Even if there is no significant Matters, KAM Paragraph is compulsory. In that paragraph you need to write:
We have not identified any matter which we believe it to be KAM during the course of the Audit, or
> Except for the material uncertainty connecting to Going Concern or the reason for modified Opinion, we have not found out anything that are to be considered to be KAM.
4 KAM:
» These 4 points needs to be given one by one.
» Under each point, the Auditor needs to write why this matter is a KAM.
» Under each point, the Auditor needs to write why this matter is a KAM.
» How did the Auditor tackle or deal with this matter during the course of the Audit?
Communication with TCWG:
If the Auditor want to Identify KAM or identified/not identified KAM, then it should be communicated to TCWG.
Documentation:
> Why a particular matter is a KAM.
> If any matter is KAM but not Disclosed and the rational behind the same.
> Thise matters which are KAM but which are the reason for modified Opinion where we can find in the Auditor’s Report.
