New York: The International Auditing and Assurance Standards Board (IAASB) released a new International Standard on Auditing ISA 701, which is to be effective for audits of financial statement for periods ending on or after December 15, 2016. This and other changes in international standard on auditing have been made to enhance auditor’s reports for investors and other users of financial statements.
ISA 701 deals with communicating key audit matters in the auditor’s report. It requires the description of a KAM to be tailored to the facts and circumstances of the individual audit engagement and the entity in order to provide relevant and meaningful information to investors and other users of the auditor’s report. It is expected that KAM will vary in terms of the number and selection of topics addressed and the nature in which they may be described.
What should be considered when adding KAM?
1- Separate heading is to be added with the title KAM.
2- An introductory language under the same header is required in order to communicate KAM, which should be in a separate section of the auditor’s report.
3- In forming the opinion on the financial statements Auditors must not imply in any way that the matter has not been resolved appropriately
4- Not to represent opinions on separate elements of the financial statements.
5- Include description in relation to KAM in the Auditor’s report, which is the responsibility of the auditor for the Audit of the Financial Statements section in the report.
6- KAM has to be specific to the entity.
7- A judgment-based decision-making framework is included in the new standard ISA 701 to help auditors determine which matters are KAM.
8- Auditors should focus on areas of interest for the investors and other users specifically the areas that need significant management judgments.
9- KAM has to include a reference to the related disclosures, if any, in the financial statements.
10- Auditor must explain why the matter was considered to be one of most significance in the audit and therefore determined to be a KAM, and how the matter was addressed in the audit.
11- ISA 701 does not request auditors on non-listed companies to mention KAM in the Auditor’s report, unlike auditing listed companies that auditors should mention KAM.
12- KAM could be one or more matter.