Key Audit Matter

Later in the notes – in Chapter 10 and Chapter 16 – you will come across “financial
statement assertions” – these relate to “classes of transactions and events” and “account balances”.
“Transactions and events” are recorded in the SoPL/OCI (and related notes)
“Account balances” are all the asset/liability balances in the SoFP (and related notes).
Examples of classes of transactions transactions are sales/purchases/cash receipts/payments and events would include scrapping an asset (it’s not a transaction because there’s no sale/cash) or insolvency of a customer.
In the context of KAMs, the auditor will consider “significant” events and transactions – so, for a start, they must be material. An example of a significant sale/purchase might be the disposal/acquisition of a subsidiary (though not examinable in AA as group audits are not examinable). A significant event might be a major fire or flood.
(Note that in events here are DURING the period – not after the reporting date. A significant event after the reporting date would be highlighted in an EoM – not a KAM.)
THEN – consideration for KAM is “how did this significant event/transaction” affect the audit? Did it change the nature/timing/extent of audit procedures that we would otherwise have carried out (if the transaction/event had not occurred)?
A good example would be if during the year a retail client moved to “online” sales.or opened a new overseas branch of operations..