1 SA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report.
2 SA 570 (Revised), Going Concern, paragraphs 22–23.
decides to communicate key audit matters in the auditor’s report. This SA also applies when the auditor is required by law or regulation to communicate key audit matters in the auditor’s report.3 However, SA 705 (Revised) prohibits the auditor from communicating key audit matters when the auditor disclaims an opinion on the financial statements, unless such reporting is required by law or regulation.4
Key audit matters – Those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. Key audit matters are selected from matters communicated with those charged with governance.
3 SA 700 (Revised), Forming an Opinion and Reporting on Financial Statements, paragraphs 30– 31.
4 SA 705 (Revised), paragraph 29.
5 SA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.
that involved significant management judgment, including accounting estimates that have been identified as having high estimation uncertainty. (Ref: Para. A23–A24)
The auditor shall not communicate a matter in the Key Audit Matters section of the auditor’s report when the auditor would be required to modify the opinion in accordance with SA 705 (Revised) as a result of the matter. (Ref: Para. A5)
If the auditor determines, depending on the facts and circumstances of the entity and the audit, that there are no key audit matters to communicate or that the only key audit matters communicated are those matters addressed by paragraph 15, the auditor shall include a statement to this effect in a separate section of the auditor’s report under the heading “Key Audit Matters.” (Ref: Para. A57– A59)
A1. Significance can be described as the relative importance of a matter, taken in context. The significance of a matter is judged by the auditor in the context in which it is being considered. Significance can be considered in the context of quantitative and qualitative factors, such as relative magnitude, the nature and effect on the subject matter and the expressed interests of intended users or recipients. This involves an objective analysis of the facts and circumstances, including the nature and extent of communication with those charged with governance.
A2. Users of financial statements have expressed an interest in those matters about which the auditor had the most robust dialogue with those charged with governance as part of the two-way communication required by SA 260 (Revised)7 and have called for additional transparency about those communications. For example, users have expressed particular interest in understanding significant judgments made by the auditor in forming the opinion on the financial statements as a whole, because they are often related to the areas of significant management judgment in preparing the financial statements.
A3. Requiring auditors to communicate key audit matters in the auditor’s report may also enhance communications between the auditor and those charged with governance about those matters, and may increase attention by management and those charged with governance to the disclosures in the financial statements
6 SA 230, Audit Documentation, paragraphs 8–11 and A6.
7 SA 260 (Revised), Communication with Those Charged with Governance.
to which reference is made in the auditor’s report.
A4. SA 3208 explains that it is reasonable for the auditor to assume that users of the financial statements:
Because the auditor’s report accompanies the audited financial statements, the users of the auditor’s report are considered to be the same as the intended users of the financial statements.