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In this article, we would like to give you a short gist on how to communicate the key audit matters in an Independent Auditor’s Report. This SA deals with the auditor’s responsibility to communicate Key Audit Matters in the Auditor’s Report. It is intended to address both the auditors’ judgment as to what to pass on in the Auditor’s Report and the form and full reporting of such matters.
What are Key Audit Matters?
While auditing the financial statements, the matters which were of most significant influence in the auditors professional judjement are known as Key Audit Matters.
Purpose of SA 701
The purpose of communicating the key audit matters is to enhance the communicative value of the audit report by providing a greater transparency on how the audit was performed. Describing key audit matters provides additional information to the intended users of the financial statement, also to make them understand the matters which in the auditor’s judgment were of most significance for the audit of current period.
Applicability of SA 701
This SA applies to the following:
- Listed entity
- Instances when the auditor decides in his judgement to communicate the key audit matters and
- Required by any law or regulation
However, SA 705(Revised) states that when disclaiming an opinion on the financial statements, the auditor is not required to describe the key audit matters in the auditors report.
Determining Key Audit Matters
- Assess the areas with higher risk of material misstatement or significant risk assessed in accordance with SA 315.
- The effect on the audit of important events or transactions that occurred during the phase of audit.
- Significant auditors judgment relating to areas in the financial statement that involved significant management judgment including the accounting areas that have high uncertainty
Examples of Key Audit Matters
- Provision for losses and contingencies
- Assessment of Impairment
- Matters relating to revenue recognition
- Taxation Matters
Explanation to the Key Audit Matters
The Auditor shall explain in brief each key audit matter, under a separate section of the auditor’s report under the Key Audit Matter paragraph.
Other Important points to be considered
Communicating the key audit matters cannot be considered as a substitute for:
- Disclosure by the management in the applicable reporting framework such as disclosures in Schedule III of The Companies Act, 2013 and Third Schedule of the Banking Regulation Act, 1949.
- Disclaiming a modified opinion when required by the circumstances of a specific audit engagement
- When there is a significant doubt on entity’s ability to continue as going concern
Written by – Kanishk Khureja
At MAS, we assist our clients in dealing with internal audits; government audits of various corporate matters (company incorporation), statutory audits, ROC compliance, and company winding-up) in India by providing them adequate support and guidance from our end. If you have any questions or wish to know more about Communicating Key Audit Matters, kindly contact us.
