What is “key audit matters” in the independent audit report?

 

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. Key audit matters are selected from matters communicated with those charged with governance.

The purpose of communicating key audit matters is to enhance the value of the auditor’s report by providing greater transparency about the audit that was performed.

The auditor shall determine, from the matters communicated with those charged with governance, those matters that required significant auditor attention in performing the audit. Matters which the auditor may determine to be KAMs include:

· Areas of higher risk of material misstatement, or ‘significant risks’ identified at the planning stage.

· Significant judgements in relation to areas where management made judgement.

· The effect of significant events or transactions.

Key audit matters are described in a separate section of the auditor’s report under the heading “Key Audit Matters”. KAM section is added in audit report in the following cases:

·       For audits of complete sets of general-purpose financial statements of listed entities.

·       In the 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.

But it is prohibited to communicate key audit matters in the auditor’s report when the auditor disclaims an opinion on the financial statements.

Each key audit matter in the Key Audit Matters section of the auditor’s report shall:

·        Include a reference to the related disclosure(s), if any, in the financial statements.

·        Describe Why the matter was considered to be one of most significance in the audit.

·        Describe how the matter was addressed in the audit.

 Below is the Example of section “Key Audit Matters” in the audit report.

A matter giving rise to a modified opinion, or a material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern are by their nature key audit matters. However, in such circumstances, these matters shall not be described in the Key Audit Matters section of the auditor’s report. Instead, the auditor shall:

(a) Report on these matter(s) in accordance with the applicable ISA(s); and

(b) 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.

The following is an extract from an audit`s report with modified opinion.

“Key Audit Matters.

 Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Basis for Qualified Opinion section we have determined the matters described below to be the key audit matters to be communicated in our report. [Description of each key audit matter.]”

The following is an extract from an audit`s report relating to going concern.

“Key Audit Matters.

 Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. (Description of each key audit matter.)”