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Hello Sir,I have few question about one of the technical article(Although its AA ,but also relevant to AAA)
https://www.accaglobal.com/my/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/auditor-report.html1.As the article states that some/one matter/issue that resulted in qualified opinion which the auditor may determine it not KAM.
@My question is if the matter that can results in qualified opinion ,is it not indicate that its material / significant ,why it might not KAM?
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2.”When the auditor has expressed an adverse opinion on the financial statements and communicates KAM, it is important that the descriptions of such KAM do not imply that the financial statements as a whole are more credible in light of the adverse opinion.”
@Can I have some example for this?How to describe the KAM and at the same time not make the FS as a whole more credible?
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3.”• 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.”
@Will these two statement contradict with each others?as what I know that if the matters is fundamental to users understanding it will be in the EoM matters?
——————————————————————————————————————-4.”IFRS® 3, Business Combinations requires goodwill to be tested for impairment at each reporting date and the annual impairment test may be regarded as a KAM where the carrying amount of goodwill is material. Impairment tests are inherently complex and judgmental and therefore management’s assessment process may also be a KAM.”
@So its mean that one KAM for impairment test and one KAM refers to management’s assessment process?Thank you. 🙂
I can’t access the article at this time as the site seems to be down for “essential maintenance”. But here we go …
See conclusion at the bottom of page 113 of the notes “matters that might give rise to a KAM, a MURGC or to an EoM appear ONCE and once only in any auditor’s report”.
Think of it like this – the report reports lots of things – it would be really confusing for the reader if the same matter was “dealt with” in lots of different places – so the report has to be structured to deal with any matter in just one place.This answers your Q1 – yes a matter may have resulted in a qualified opinion – but in that case it is reported in the basis of opinion para.
It also answers your Q3 – the auditor has to decide where to report an EoM (e.g. a non-adjusting event disclosed in the notes) if it also meets the definition of a KAM. This is a matter of professional judgment – EoM could go before or after KAM section or it could be given greatest prominence in the KAM section (e.g. it could be the first KAM).
There is NO contradiction – an EoM is a financial reporting matter – a KAM is an audit matter. A matter which requires an EoM MAY have high assessed risk/require significant judgments/etc – but NOT necessarily.Returning to your Q2 – when an audit opinion is qualified the basis of opinion can “spell out” the financial effects of the misstatements, whether it was a KAM or not doesn’t matter – it has been reported to the reader so no more needs to be said about it. But when an audit opinion is adverse, there may be a limit to how much is conveyed about the KAMs in the basis of opinion section. If there is no more to be said the KAM section might say “We have determined that there are no key audit matters to communicate in this report other than those matters described in the Basis for Adverse Opinion section.”
Is there is more to be said, ISA 701 says that the auditor must take particular care with the language used to describe a KAM – e.g. it should not imply that it has been resolved (when it hasn’t) or that it is adequately disclosed in the notes (when it is’t).Q4 – yes – there can be more than one KAM associated with one IFRS (i.e. AUDIT matters are NOT “lumped” together under one KAM just because the FR aspects are “lumped” together under one IFRS).
Since the issue of IAS 701 here are some of the KAMs that are being reported:
– Impairment of financial instruments/goodwill
– Valuation of PPE/investment properties
– Investment in subsidiaries
– Deferred tax
– Revenue recognitionAs a final tip – if wondering where “something” gets reported – think about if the entity was NOT listed – i.e. there are no KAMs to be reported. If for an unlisted entity it would be basis of opinion, EoM, MURGC … that is pretty much where it should go in auditor’s report for listed entity. KAMs then provide additional information.
Thank you for your detailed explanation of my question, I very appreciate it for your hard work, Thank you so much. 🙂
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