- This topic has 3 replies, 2 voices, and was last updated 2 years ago by
.
- Posts
Good Morning,
I have many doubts about the KAMs. First of all which factors to consider in determining that an issue is a KAM? they are: complex accounting transactions, areas where management’s judgement is exercised, significant events.
Are they the indicators?Then how distinguish a KAM from a Emphasis of matter? the first one require significant audit attention the second one does not require, but I am not able to take an example. Can I have a real example?
Thank you in advance
FeWelcome to my AA forum!
First – please read what what I have written on page 31 of the notes – in particular the first sentence:
“The first thing to note is that the auditor only reports on key AUDIT matters (“KAMs”) in respect of listed entities.”
The “indicators” are assessed from the AUDIT perspective (see page 31).
An EoM must be an ACCOUNTING/FINANCIAL REPORTING matter (because it must be cross-referenced to a note in the financial statements) – and may be relevant to ANY entity – listed or unlisted (or not even a company but any entity with an audit requirement).
The “classic” EoM is the non-adjusting event after the reporting date – see page 37 of the notes. It is highly unlikely that this would be a KAM for a listed entity – it clearly happened – it has been adequately disclosed (otherwise it can’t be an EoM) – it didn’t have to be communicated to TCWG (they were already well aware that the fire/flood/other disaster resulted in some loss of assets) – it wasn’t a significant risk (the disclosure requirements of IAS 10 are straightforward) and it didn’t require significant audit attention.
If for a listed entity an item were to be both a KAM AND an EoM (I can’t think of an example off-hand) it would be communicated in the KAM paragraph. There is a “general rule” that any matter/issues is reported only in ONE place in an auditor’s report so it would NOT then be duplicated as an EoM.
If what is regarded as a KAM has any disclosuew in the notes to the financial statements, the
KAM does not need to repeat that information but must refer to the relevant note instead.Sir,
Thank you very much for your clarification!However I have faced a question related to this topic and I have made a mistake! Here the scenario:
The HR director told you that Sampson Co’s lawyers believe that the finance director’s claim is likely
to be successful, but estimate that $150,000 is the maximum amount of compensation which would be paid.
However, management does not intend to make any adjustments or disclosures in the financial statements.Which of the following audit opinions will be issued if the unfair dismissal case is NOT adjusted for or
disclosed within the financial statements?– A qualified audit opinion as the financial statements are materially misstated
– A qualified audit opinion as the auditor is unable to obtain sufficient appropriate evidence
– An unmodified opinion with an emphasis of matter paragraph
– An unmodified audit opinion
Well I thought that the issue is not material so un unmodified opinion is expressed, however
the management does not recognised the provision in the financial statements so I thought that it is a important matter but not require significant audit attention and my final answer was:An unmodified opinion with an emphasis of matter paragraph. meanwhile the correct one
is just “unmodified opinion”Could you explain me what is wrong with my argumentation?
Always Thanks!
FedeYours is a common misconception – but an EoM has a very specific purpose – it is NOT to “mention” something that is not material. If something is not material NO ONE WILL CARE (!) – don’t quote me in the exam but consider the definition of material (page 34 of the notes).
Basically, the auditor has to “come off the pot/fence” and DECIDE – is it material? If yes it is reported – it not it isn’t! There is nothing in between.
- You must be logged in to reply to this topic.