ISA 701: Key Audit Matter

When to include KAM Section How to determine KAM How to draft KAM Section

Audit of Complete Set of General Other Audit Engagements Definition Factors in determining significance Examples Main Heading (Key Audit Matters)
Purpose Financial Statements of Listed – Introductory Language
Entity – Statement depending on existence of KAM, and type of opinion
"We have determined the matters described below to be Key Audit
– Not required. – Most significant – Higher Risk 1. Goodwill, Intangible Assets, Deferred Tax. Matters to communicate in our report."
– Allowed if auditor decides or law requires. – Current Period – Judgments and Complexity involved 2. Valuation of assets and liabilities.
Required (except in Disclaimer of Opinion) – Communicated with TCWG – Expert involved 3. Change in accounting policies.
– Significant Event/transactions 4. Areas where work of Expert or Component
– Significant Accounting Policies auditor is used. Sub-heading (individual KAM)
5. Acquisition and disposals of business units.
6. Restructuring of business.
7. Significant number of litigations, and tax
contingencies. What Why How
Additional Concepts 8. Significant related party transactions.

Matter + Reference Justification Addressed

– How many KAMs (no lengthy list, 2-3) (Procedures, Outcome, Observation)
– No KAM
– When KAM not reported
– KAM from previous year or other clients
– Modified Opinion alongwith KAM
– Original information to be provided by
management Exam Tip: Drafting of KAM is like drafting of Risk Assessment Question.