Key Audit Matters

Question 1

What is the requirement to include a Key Audit Matter (KAM) section in the audit report for a listed entity?

Answer 1

Required by ISAs, unless disclaimer of opinion is expressed.

Question 2

Is the KAM section required for an audit of a complete set of general purpose financial statements of an unlisted entity?

Answer 2

Not required by ISAs, but may be included if required by law or
decided by the auditor.

Question 3

What are Key Audit Matters (KAMs)?

Answer 3

Matters that, in the auditor’s professional judgment, were of
i) most significance
ii) current period.

Question 4

What are examples of significant matters that may require significant auditor attention?

Answer 4

• Areas of higher risks or significant risks as per ISA 315
• Accounting Policies significantly affecting financial statements
• Complex and Judgmental areas
• Areas involving experts
• Significant events or transactions during the period

Question 5

How many Key Audit Matters should typically be included in an audit report?

Answer 5

Usually 2 – 3 Key Audit Matters are included.

Question 6

What should the introductory language state in the KAM section of the audit report?

Answer 6

Standard language - can be copy from Illustrations in ISA 705

Question 7

If there are no Key Audit Matters to communicate in a report with an unmodified opinion, what statement should be included?

Answer 7

“We have determined that there are no key audit matters to communicate in our report.” - SAME WRITTEN IN ISA 701

Question 8

What information should be included for each individual Key Audit Matter?

Answer 8

WWH - WHAT, WHY & HOW
* What is the KAM
* Why the matter was considered most significant
* How the matter was addressed in the audit

Question 9

What should auditors avoid when drafting descriptions of Key Audit Matters?

Answer 9

Implying that the auditor expresses a separate opinion on KAMs.

Question 10

What are some examples of common Key Audit Matters?

Answer 10

• Goodwill, Intangible Assets, Deferred Tax
• Revaluation of assets
• Valuation of liabilities
• Significant accounting policies
• Tax contingencies

Question 11

What is the significance of the placement of the KAM section in the audit report?

Answer 11

To make it prominent, the KAM section should be placed closely to the auditor’s opinion.

Question 12

What does the auditor need to document regarding Key Audit Matters?

Answer 12

• Matters that required significant auditor attention
• Reasoning whether or not each matter is KAM

Question 13

What should auditors communicate with those charged with governance (TCWG)?

Answer 13

• Matters determined to be KAM
• Auditor’s determination that there are no KAM

Question 14

True or False: A matter reported as KAM in the previous year may also be included this year if it meets criteria.

Answer 14

True

Question 15

Fill in the blank: Key Audit Matter is not a substitute for ______.

Answer 15

[Disclosures in F/S, Modified Opinion, Material Uncertainty relating to Going Concern, Separate opinion on single element]

Question 16

What should the audit procedure to verify the revaluation of PPE, Non current assets held for sale etc. ?

Answer 16

The competence, capability, and objectivity of the expert.

Question 17

What is a common reason for identifying tax contingencies as a Key Audit Matter?

Answer 17

Significance of amounts involved and judgments to assess the outcome of tax litigations.

Question 18

What is one of the main reasons for identifying Goodwill as a Key Audit Matter?

Answer 18

Its amount is material to the financial statements and involves complex and judgmental processes.

Question 19

What should be assessed regarding the adequacy of disclosures related to Key Audit Matters?

Answer 19

The disclosures in notes to the accounts must be assessed for their relevance and completeness.

Question 20

How should the auditor address the complexity of assessing retirement benefits as a Key Audit Matter?

Answer 20

By using specialist actuarial input for assumptions like expected annual increments and mortality rates.

Question 21

What is the focus of the analysis performed on deferred tax balances?

Answer 21

Recoverability of deferred tax assets and evaluation of company’s assumptions and estimates

This analysis ensures that sufficient future taxable profits can be generated to utilize deferred tax assets.

Question 22

What role did an internal tax specialist play in the audit procedures?

Answer 22

Provided support in the analysis of deferred tax balances

This specialist helps ensure compliance with tax regulations.

Question 23

Why were related party transactions identified as a Key Audit Matter?

Answer 23

Due to the nature and significance of such transactions to the financial statements

Related party transactions can impact the integrity of financial reporting.

Question 24

What procedures were performed to understand related party transactions?

Answer 24

Obtained understanding of controls, inspected meeting minutes, and compared transactions with supporting documents

This helps in assessing the accuracy of transaction disclosures.

Question 25

What is the significance of the long term loan in the audit?

Answer 25

Amount is significant and involves compliance with debt covenants ## Footnote Non-compliance can lead to financial distress for the company.

Question 26

What steps were taken to review the long term loan agreement?

Answer 26

Reviewed loan agreement, inquired about compliance, and circularized confirmations to lenders ## Footnote This ensures that loan terms are understood and followed.

Question 27

Why were inventories identified as a Key Audit Matter?

Answer 27

Significant amount compared to total assets, and involves management judgment for NRV and obsolescence ## Footnote Accurate inventory valuation is crucial for financial accuracy.

Question 28

What procedures were performed for inventory verification?

Answer 28

Physical verification of inventory counts, comparison with supporting documents, and evaluation of usability ## Footnote This helps in validating the accuracy of inventory reported.

Question 29

What was assessed regarding trade debts?

Answer 29

Determination of recoverable amount and management judgment involved in bad debt provisions ## Footnote Recoverable amounts directly impact financial health assessments.

Question 30

What steps were taken to verify trade debts?

Answer 30

Sent confirmation letters, checked cash receipts, and understood internal controls over credit processes ## Footnote This ensures the validity of reported receivables.

Question 31

What is the implication of a change in Accounting Policy or Framework?

Answer 31

Significant changes in measurement, presentation, and disclosure requirements ## Footnote Such changes can affect financial statements and reporting practices.

Question 32

What was considered regarding the management’s process for accounting changes?

Answer 32

Identifying necessary amendments for financial statements and ensuring compliance with presentation and disclosure requirements ## Footnote This ensures that all changes are accurately reflected in financial reporting.