ISA 701 DEALS with the auditor’s responsibility to COMMUNICATE key audit matters in the auditor’s report.
Table of Contents
- ISA 701 – Introduction
- ISA 701 – Objectives
- ISA 701 – Definitions
- ISA 701 – Requirements
- 1. Determining Key Audit Matters
- 2. Communicating Key Audit Matters
- 2.1 Key Audit Matters Not a Substitute for Expressing a Modified Opinion
- 2.2. Descriptions of Individual Key Audit Matters
- 2.3 Circumstances in Which a Matter Determined to be a Key Audit Matter Is Not Communicated in the Auditor’s Report
- 2.4 Form and Content of the Key Audit Matters Section in Other Circumstances
- 3. Communication with Those Charged with Governance
ISA 701 – Introduction
1. Scope of this ISA
It applies to audits of ‘Complete Sets of General Purpose Financial Statements’ of LISTED entities and circumstances when the auditor otherwise decides to communicate key audit matters in the auditor’s report.
2. Effective Date
This ISA is EFFECTIVE for audits of financial statements for periods ending on or after December 15, 2016.
ISA 701 – Objectives
The objectives of the ‘auditor’ are to DETERMINE key audit matters and having formed an opinion on the financial statements, COMMUNICATE those matters by describing them in the auditor’s report.
ISA 701 – Definitions
1. Key Audit Matters
Those matters that in the auditor’s professional judgment were of most SIGNIFICANCE in the ‘audit’ of financial statements of the current period.
ISA 701 – Requirements
1. Determining Key Audit Matters
|The Auditor Shall TAKE Into Account the Following:|
|(a) Areas of higher assessed risk of material misstatement or significant risks identified in accordance with ISA 315 (Revised).|
|(b) Significant auditor judgments relating to areas in financial statements that involved significant management judgment, INCLUDING accounting estimates.|
|(c) The effect on the audit of significant events or transactions that occurred during the period.|
2. Communicating Key Audit Matters
The ‘auditor’ shall DESCRIBE each key audit matter using an appropriate subheading in a separate section of the auditor’s report under the heading ‘Key Audit Matters‘.
2.1 Key Audit Matters Not a Substitute for Expressing a Modified Opinion
The ‘auditor’ shall NOT COMMUNICATE a matter in the Key Audit Matters section when the auditor would be required to MODIFY the opinion in accordance with ISA 705 (Revised) as a result of the matter.
2.2. Descriptions of Individual Key Audit Matters
The description of each key audit matter in the Key Audit Matters section of the auditor’s report shall INCLUDE a reference to the related disclosure(s), if any in the financial statements and shall ADDRESS:
- Why the matter was considered to be one of most significance in the audit and therefore determined to be a key audit matter; AND
- How the matter was addressed in the audit.
The ‘auditor’ shall DESCRIBE each key audit matter in the auditor’s report unless:
|(a) Law or regulation precludes public disclosure about the matter; OR|
|(b) In extremely rare circumstances, the ‘auditor’ determines that the matter should not be communicated because the ADVERSE consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.|
2.4 Form and Content of the Key Audit Matters Section in Other Circumstances
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, the auditor shall INCLUDE a statement to this effect in a separate section of the auditor’s report under the heading ‘Key Audit Matters‘.
3. Communication with Those Charged with Governance
The ‘auditor’ shall COMMUNICATE with Those Charged with Governance:
- Those matters the auditor has determined to be the key audit matters; OR
- If applicable, depending on the facts and circumstances of the entity and the audit the auditor’s determination that there are no key audit matters to communicate in the auditor’s report.
The International Standard on Auditing ISA 701 ‘Communicating Key Audit Matters in the Independent Auditor’s Report’ DEALS with the auditor’s responsibility to communicate key audit matters in the auditor’s report.
[700-799] Audit Conclusions and Reporting → Articles @ EntreprenurialHub by Jhanzayb
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)