Audit Matters Notes

Key Audit Matters (KAMs)

KAMs are significant areas identified during an audit, disclosed in the auditor's report to provide transparency on areas requiring significant auditor attention and judgment.

Key characteristics:

• Significance: Most important issues identified during the audit.
• Professional Judgment: Auditor's judgment is crucial.
• Communication: Matters communicated to those charged with governance.
• Disclosure: Disclosed in a dedicated section of the auditor's report.
• Transparency: Provides insights into the audit process.
• Not a Substitute: Does not replace other required disclosures.

Examples:

• Valuation of difficult assets or liabilities.
• Impairment of goodwill or other intangible assets.
• Revenue recognition, especially complex transactions.
• Accounting for business combinations.
• Provisions and contingencies.
• Going concern.
• Internal control over financial reporting.

Importance:

• Enhanced Transparency: Better understanding of the audit process.
• Improved Investor Confidence: Informed decisions with understanding of key risks.
• Increased Accountability: Highlights areas of auditor's focus and judgment.

Emphasis of Matter

An emphasis of matter paragraph draws attention to a matter presented in the financial statements that the auditor deems fundamental to users' understanding and does not modify the audit opinion.

• Purpose: To alert users to a specific matter in the financial statements needing special attention.
• Not a Modification: Does not indicate a misstatement or disagreement.
• Location: Immediately after the opinion paragraph.
• Content: Refers to the matter and relevant disclosures.
• Example: Significant legal dispute with potential impact disclosed in notes.
• Distinction: Emphasis of matter refers to matters within the financial statements, while other matter paragraphs refer to matters outside the financial statements.