KAM Flashcards
General Principles of Key Audit Matters
1.1 What is the primary objective of communicating Key Audit Matters (KAMs) in the auditor’s report?
a) To provide a summary of the audit procedures performedb)
b)To enhance the communicative value of the auditor’s report by providing transparency on the most significant mattersc)
c)To replace the basis for opinion paragraphd)
d)To summarize financial statement disclosures
To enhance the communicative value of the auditor’s report by providing transparency on the most significant matters
In accordance with ISA 701, Key Audit Matters are selected from:
a) Significant risks identified during the audit
b) All matters communicated with those charged with governance
c) Matters resulting in a modified opinion
d) The risk assessment procedures performed by the auditor
b
Which of the following is NOT a factor to consider when determining whether a matter qualifies as a Key Audit Matter?
a) The auditor’s assessment of risks of material misstatement
b) The significance of the matter to the audit
c) The complexity of the matter
d) The availability of supporting documentation
Answer: d
How does the inclusion of KAMs affect the auditor’s opinion on the financial statements?
a) KAMs modify the opinion
b) KAMs do not modify the opinion
c) KAMs replace the basis for opinion
d) KAMs always lead to a qualified opinion
b
Which of the following is considered when identifying Key Audit Matters?
a) Areas that required significant auditor judgment
b) The auditor’s response to assessed risks
c) The effect on the overall audit strategy
d) All of the above
d
A matter is most likely to be determined as a KAM if:
a) It relates to a routine transaction with no significant complexities
b) It involves subjective or complex auditor judgment
c) It is not communicated with those charged with governance
d) It relates to internal control deficiencies
b
According to ISA 701, a matter communicated to those charged with governance must be disclosed as a KAM unless:
a) The auditor determines that disclosure is not required
b) Law or regulation precludes public disclosure
c) Management consents to the disclosure
d) The auditor issues an adverse opinion
b
When documenting KAMs, the auditor should include:
a) The reason why the matter is a KAM
b) How the matter was addressed in the audit
c) Both a and b
d) Neither a nor b
c
Where are Key Audit Matters disclosed in the auditor’s report?
a) Within the opinion paragraph
b) After the basis for opinion paragraph
c) As part of the financial statements
d) In the management’s discussion and analysis
b
Which of the following should be avoided when describing a KAM in the auditor’s report?
a) Technical language
b) Generic or standardized wording
c) Detailed descriptions of procedures
d) All of the above
d
ISA 701 is required for audits of:
a) Listed entities
b) All entities
c) Private companies only
d) Entities with significant deficiencies
a
Under ISA 701, the auditor is prohibited from including a matter as a KAM if:
a) The matter is a significant risk
b) It would result in a qualified opinion
c) It is prohibited by law or regulation
d) The matter involves fraud
c
If the auditor determines that no matters are KAMs, the auditor should:
a) Omit the KAM section entirely
b) State in the report that there are no KAMs
c) Include KAMs anyway to ensure transparency
d) Discuss with management whether to disclose KAMs
b
The auditor identified that revenue recognition involved significant judgment due to complex contracts. The auditor concluded this was a Key Audit Matter. How should this be disclosed in the auditor’s report?
a) By describing the complexity of contracts and the auditor’s procedures to address the matter
b) By including detailed financial data in the KAM description
c) By stating the auditor’s opinion on the appropriateness of revenue recognition policies
d) By omitting the matter due to confidentiality
a
During the audit of a listed entity, the auditor identified impairment of goodwill as an area requiring significant auditor judgment. The auditor addressed this through specialized testing. How should this be handled?
a) Disclose the procedures and rationale for determining goodwill impairment as a KAM
b) Exclude the matter as it involves management’s judgment
c) Conclude it is not a KAM due to the availability of external valuations
d) Modify the opinion due to uncertainty
a
