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Advantages of communicating Key Audit Matters in accordance with ISA 701.

Key audit matter as per ISA 701 are those matters in auditor’s professional judgement, were of the most significance during the audit of financial statements. Key audit matters are supposed to be reported on the audit report of reporting entities having public accountability

Reporting entity having public accountability includes:-

Any entity that its debt or equity instrument are traded in the public market or is in the process of issuing such instruments for trading in public market (a foreign or domestic stock exchange or over the counter market, including local and regional market or,

All entities that hold assets in a fiduciary capacity for the broad group of outsiders as one of its primary businesses (banks, credit union, insurance companies, securities brokers/dealers, mutual funds, investment banks and pension funds)

In determining key audit matters the auditors shall consider the following;

  • Areas of high assessed risk of material misstatements or significant risks
  • Significant auditor judgements relating to areas in the financial statements that involved significant management judgement, including accounting estimates that have been identified as having high estimation uncertainty
  • the effect on the audit of significant events or transactions that occurred during the period

Advantages of communicating key audit matters in the auditors’ report:

Enhance the communicative value of the auditors report by providing greater transparency about the audit performed

Provide additional information to users of the financial statements to assist them in understanding those matters that in auditors professional judgement, were of most significance during the audit of financial statements

Assist users in understanding the entity and areas of significant management judgement in the audited financial statements

Enhance communications between the auditor and those charged with governance about those matters, and may increase the attention by management and those charged with governance on their disclosure in the financial statements to which reference is made in the auditor’s report.

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