KAM ISA 705

DEFINITION KAM:
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. KAMs must always relate to matters already included within the financial statements.
– Improves the quality of information given to stakeholders by highlighting the difficulties encountered by the auditor
– Provides an insight on how the audit is performed and what goes through the mind of the auditor, whereas up to now it only focused on the users of the Report
DETERMINATION OF KAM
– Areas of higher risks of material misstatement or which were deemed to be ‘significant risks’ in accordance with ISA 315
– Significant auditor judgments in relation to areas of the financial statements that involved significant management judgment.
– The effect on the audit of significant events or transactions that have taken place during the period.
REPORTING KAM
– Contents:
1 These are the ‘matters of most significance’
2 No separate opinion is provided on them because they are covered by the audit opinion
3 Why the matter was determined to be one of most significance and therefore a key audit matter, and
4 How the matter was addressed in the audit
A description of the auditor’s approach, a brief overview of procedures performed with an indication of their outcome and any other Key observations.
– Exception : Law or regulation precludes public disclosure about the matter such as Mentioning money laundering may tipoff
– In case of conflict with matters to be discussed in Basis for opinion para or Material uncertainty relating to going concern the former paragraph will be given preference and KAM will refer
Emphasis of Matter paragraphs and Other Matter paragraphs in the independent auditor’s report
– EOM: When a matter of Fundamental Understanding
1 When a financial reporting framework prescribed by law or regulation would be unacceptable but for the fact that it is prescribed by law or regulation
2 To alert users that the financial statements are prepared in accordance with a special purpose framework
3 When facts become known to the auditor after the date of the auditor’s report and the auditor provides a new or amended auditor’s report (i.e. subsequent events)
– OM: When matter is instructed to be highlighted In auditors report other than those paragraphs
1 Where prior period financial statements were audited by a predecessor auditor (ISA 710)
2 Where prior period financial statements were not audited (ISA 710)
3 When reporting on prior period financial statements in connection with the current period’s audit, if the auditor’s opinion on such prior period financial statements differs from the opinion the auditor previously expressed (ISA 710)
ISA 710
Comparative Information – Corresponding Figures and Comparative Financial Statements
– Auditor shall obtain SAAE that accounting policies used for the comparatives are consistent with those applied in prior period and any changes is reasoned and disclosed properly.
– Auditor shall see that comparative amounts match with current period and are free from material misstatements in context of current year F/S
– ISA 710 requires that the auditor obtains written representations for all periods referred to in the audit opinion.
Reporting: Prior year Unaudited or audited by another auditor:
· Incase audited by other auditor in past : also mention the – Type of report and if modified therefore reasons, – date of that report
? State prior F/S were unaudited or audited by other auditor
? State Auditor is not relived of requirement to carry out procedures to obtain SAAE over opening balances (ISA 510)
? If auditor finds a misstatement then ask management to revise else modify appropriately.
– Case: If there was a matter in Past :
? Prior matter Resolved as of now and modified before: No modification. IF Material to current period then EOM
? Prior matter Unresolved as of now and was Modified before: Modify for current as well as for corresponding figures
? Prior matter Unresolved as of now and Unmodified before: Modify due to misstatement in current figures and identify that previous one was unmodified incorrectly
ISA 720
The Auditor’s Responsibilities Relating to Other Information
– Auditor is not responsible for other information disclosed in Financial report or incase Auditor might be required to audit other information under local statutory laws.
– Auditor is required to read out other information in F/S i.e. Chairman’s note and see if it doesn’t clash with knowledge present in Audited F/S.
– Incase other information is materially different, then the auditor shall seek :
1 Rework specific accounts
2 Ask management to prove their other information
– If there is a rework and misstatement is found auditor shall ask management to correct misstatement in the F/S considering management integrity as well.
– If management refuses above then modify as per ISA 705
– If there is a restatement required in other info then auditor shall ask management to revise other info
– In case management refuses auditor shall disclose inconsistency in other matter paragraph of its auditor’s report and also consider management integrity.