Webinar ACCA AFA IAPI IAI-What You Need To Know About Implementing KAM - NS Presentation Final

ACCA-AFA-IAI-IAPI Joint Webinar 2020
What You Need To Know

About Implementing
Key Audit Matters (KAM)
Presented by:
Kusumaningsih Angkawidjaja
Indonesian Auditing and Assurance Standards Board 1 – IAPI
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© 2020 Institut Akuntan Publik Indonesia (IAPI)
Enhanced Auditor’s Report (EAR) &
Key Audit Matters (KAM)
Effective date and

EAR KAM applicability
Without changing the The new requirements

This is the most
scope of an independent are expected to be
significant change in
audit, the new standard effective for the
EAR – the auditor needs
(SA 700 series) open the financial statements
to include descriptions of
door for the auditor to audits for the periods
KAM in the auditor’s
give users more insight beginning on or after
report (SA 701 - ED
into the audits and January 1, 2022 (starting
issued in Dec ‘19).
improve transparency. with listed entities).
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Applicability to Implement KAM – According ISA 701
The new
requirements are
expected to be
effective for the
audit financial
For audits of complete When we are otherwise
When we otherwise statements for the
set of general purpose required by law or
decide to. periods beginning
financial statements of regulation.
listed entities. on or after January
1, 2022 (starting
with listed entities).
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The changes in EAR in a Nutshell
• The Audit opinion will start the auditor’s • More explicit statement about the auditor’s
report. independence.
• Auditors of listed companies must report • Enhanced description of management’s
KAM. responsibilities for assessing the entity’s ability to
• Separate section when a material uncertainty continue as a going concern; the use of the going
exists related to the entity’s ability to concern basis is appropriate.
continue as a going concern and is adequately • New description of the auditor’s responsibilities
disclosed in the financial statements. to conclude on the appropriateness of
• Separate section when an entity prepares management’s use of the going concern basis of
other information (ISA 720) accounting.
• Identification of TCWG, when applicable.
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What Are The Key Audit Matters (KAM)?
Key Audit Matters are those matters, that in the auditor’s professional judgment were of
most significance in the audit of the entity’s financial statements of the current period.
Key Audit Matters are selected from matters communicated with those charged with
governance and placed in a separate section of the auditors’ report.
Determination of KAM is auditor's judgement and KAMs are expected to be entity-

specific and specific to the audit that was performed.
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Determination of KAM – Step by Step
Step 1
Matters that were

Step 2
Step 3
KAM
communicated with Matters that
those charged with required significant
Matters of most
governance. auditor attention in significance to the
performing the audit. The auditor is required to take into account the
audit. following in making this determination:
• areas of higher assessed risk of material
misstatement, or significant risks.
• significant auditor judgments relating to areas in the
financial statements that involved significant
management judgment, including accounting
In certain limited circumstances, if there are no KAM to estimates identified as having high estimation
uncertainty.
communicate, a statement to that effects is required to be included
• effect on the audit of significant events or
in the auditor’s report and communicated to TCWG. transactions that occurred during the period.
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KAMs are not:
A substitute of the
preparer’s view
reported in the KAMs are not a substitute
financial statements. for expressing a modified
opinion.
It is important to note that communicating KAMs in the auditor’s report is in the context of the auditor
having formed an opinion on the FS as a whole – not a separate opinion on individual matters reported in
KAMs.
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Value of Communicating KAMs
Help better communication between the auditors and those charged with
governance, this in turn contributes to better governance
Opens up transparency on the audit process relating to the auditors professional

judgment
Contribute to higher audit quality
Contribute to higher quality financial reporting
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Most frequently reported KAMs
Impairment of Revenue
goodwill Valuation of PPE
Recognition
Investment
Acquisition Investment Capitalization
properties
Overall, it is apparent that those audit matters that are judgmental, involve estimates, uncertain
and/or complex, are the most frequently reported KAM.
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Interesting KAM Topics
Complex IT
systems and
controls
Taxation –
uncertainty
over income
tax
treatment
IFRIC
23/ISAK 34
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Exceptions for Reporting KAM
Law or regulation precludes public disclosures about the matter.
Adverse consequences of reporting KAM would reasonably be expected to outweigh

the public interest benefits of such communication.
Disclaimer of opinion and Adverse opinion.
No matters that required significant auditor attention (very rare situation).
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How are KAM communicated and described?
• KAM is communicated in a separate section of the auditors’ report under the heading “Key Audit Matters”
• Start with the introductory language to state what KAM is and to emphasis that these matters were addressed in the
context of the audit of the financial statements as a whole, and in forming the auditor’s opinion. The auditor does
not provide a separate opinion on these matters.
• The auditor is required to described KAM in the auditor’s report as follows:
Financial Statement Note

Issue Audit Response
Disclosure
why the matter was considered to be how the matter was reference to the related
one of the most significant in the addressed in the audit. financial statement note
audit and therefore determined to be disclosure(s), if any.
a KAM.
The description of KAM is intended to be fact based and tailored to the company, informative, concise and
understandable to a non-auditor.
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ILLUSTRATION of KAM
Example: Information System – reported as KAM due to the heavily reliance on complex,
automated process.
Key Audit Matter

IT Systems and controls over financial reporting
The Company’s key financial accounting and reporting processes are highly depended on the automated
control over the Company’s information systems. As such, there is a risk that exist in the IT control
environment, including automated accounting procedures. IT dependent manual controls and controls
preventing unauthorized access to systems and data could result in the financial accounting and reporting
records being materially misstated. The IT systems and controls, as they impact the financial reporting and
reporting of transactions, is a key audit matter and our audit approach could significantly differ depending
on the effective operation of the Company’s IT controls.
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EXAMPLES of KAM
How The Matter Was Addressed In Our Audit
We used our internal IT specialist to perform audit procedures to assess IT systems and controls over
financial reporting, which included the following:
• General IT controls design, implementation and operation:
 Testing the sample of key controls over the information technology in relation to financial
accounting and reporting systems, including system access and system change management,
program development and computer operations.
• User access control operation:

 Accessing the management evaluation of access rights granted to applicants relevant to financial
accounting and reporting systems and tested resolution of exceptions noted.
 Assessing the operation effectiveness of controls over granting, removal and appropriateness of
access rights.
 Testing specific application controls for key financial reporting controls.
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Financial Reporting Ecosystem 1/4
Who is affected by the Changes?
Audit Committee
Audit Committee are suggested to:
Support and Oversee financial reporting Consider whether disclosures in

cooperate the Engaging in early and open the financial statements or
process of the listed entities
dry-run. communication with auditors, elsewhere in the annual report
more closely, especially the
particularly on key audit matters and/or other investor
matters that could be key audit
issues. communications need refreshing
matters.
so that they are in line with key
audit matters.
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Investor
Be able to learn in detail

on the issues discussed
Investor will have access Investor can incorporate
between auditors, Know the audit
to information that was this information in the
management and those procedures for each key
previously only available evaluation of individual
charged with governance, audit matters.
in the Boardroom. company.
in relation to key audit
matters.
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Member of the Management Team
Management to revisit the It is important to note that the enhanced auditor's reports
Support and engage in the financial statements as will also include more detailed description of the
dry-run. KAM often directs users to auditor's and management responsibilities with respect
the note disclosures. to the financial statements.
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Regulators
Regulators will have a greater

Regulators will be able to see
visibility on the areas which are
greater transparency and
most significance in the audit and
independence about the audit that
how the auditors addressed this
was performed.
matter.
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Getting Started!
Timeline and Implementation

Given the significance of the changes to the financial reporting process with respect to KAM and the process should
include the Auditor, management and the Audit Committee, having an implementation process and timeline is critical
to the successful implementation.
Example of an implementation process and timeline:
2022 year end

Immediately – 2021 year end audit planning 2022 year end
Understand how the 2022 year end audit – New
audit – Dry-run of meeting – Plan for
changes affect the audit – Execute. auditors report
entity.
the new standards. a smooth
transition. issued for the
first time.
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Key Takeaways for Smooth Implementation
Start early – discussion between auditor, management and AC at the soonest opportunity.
Encourage the AC and auditors to undertake a dry- run.
Look out for consistency.
Pro-actively engage in the process.
Educate investors.
Make use of the available resources.
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Thank You
KA/fl
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ACCA-AFA-IAI-IAPI Joint Webinar 2020

What You Need To Know

Effective date and

Without changing the The new requirements

Determination of KAM is auditor's judgement and KAMs are expected to be entity-

Matters that were

Opens up transparency on the audit process relating to the auditors professional

Contribute to higher audit quality

Contribute to higher quality financial reporting

Law or regulation precludes public disclosures about the matter.

Adverse consequences of reporting KAM would reasonably be expected to outweigh

Disclaimer of opinion and Adverse opinion.

No matters that required significant auditor attention (very rare situation).

Financial Statement Note

Key Audit Matter

• User access control operation:

Who is affected by the Changes?

Audit Committee are suggested to:

Support and Oversee financial reporting Consider whether disclosures in

Who is affected by the Changes?

Be able to learn in detail

Who is affected by the Changes?

Member of the Management Team

Who is affected by the Changes?

Regulators will have a greater

Timeline and Implementation

Example of an implementation process and timeline:

2022 year end

Encourage the AC and auditors to undertake a dry- run.

Look out for consistency.

Pro-actively engage in the process.

Make use of the available resources.

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