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Hello Sir,
for KAM
There are three matters which the ISA requires the auditor to take into account when making this determination which are communicated with those charged with governance
one of these is
“The effect on the audit of significant events or transactions that have taken place during the period.”Can you please give me some example for the effect that will occur on the audit of significant event or transaction?I don’t understand what’s mean.
Thank you.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..
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