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Dear Mike,
Key Audit Matters (KAMs) includes the matter of “most significance” as per the auditor judgement and it will already be disclosed in the Financial Statements.
My Two Questions are,
1. How we assess or analyze in a given scenario that the matter is of “most Significance” ?
2. How it will be differentiated with Emphasis of Matter ?
Any rule of thumb or indicators ?
You’ve answered your own question (1) with this:
“… the matter of “most significance” as per the auditor judgement”
It’s the individual judgement of the individual auditor that determines whether a matter is “of most significance” and by leaving it to the individuals concerned leaves the door wide open for inconsistent approaches and assessments
As for question (2), here’s a link to a technical article and below the link I have copied the relevant extract in case you don’t want to read the full article! (The final sentence / paragraph is particularly relevant)
“EMPHASIS OF MATTER AND OTHER MATTER PARAGRAPHS
Emphasis of Matter and Other Matter paragraphs are still retained in ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report and the concepts involved have not been overridden by the new ISA 701 requirements.
The IAASB have noted that in some cases, matters which the auditor considers to be KAM will relate to issues that are presented and/or disclosed in the financial statements.
Therefore, communicating these as KAM under ISA 701 will serve as the most useful and meaningful mechanism for highlighting the importance of the matter.
Candidates should appreciate that when the auditor communicates matters as KAM, the intention is to provide additional information beyond that which would be included in an Emphasis of Matter paragraph.
In recognition of this ISA 706 (Revised) states:
The auditor is prohibited from using an Emphasis of Matter paragraph or an Other Matter paragraph when the matter has been determined to be a KAM.
To that end, the IAASB has emphasised that the use of an Emphasis of Matter paragraph is not a substitute for a description of individual KAM.
If a KAM is also determined to be fundamental to users’ understanding, the auditor may present this issue more prominently in the KAM section.
Alternatively, the auditor might also include additional information in the KAM description to indicate the importance of the matter.
There may be a matter which is not determined to be a KAM, but which, in the auditor’s judgement is fundamental to users’ understanding and for which an Emphasis of Matter paragraph may be considered necessary.”
Hope that helps!
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