SA-701 – Communicating Key Audit Matters in the Independent Auditor's Report

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.

Definitions

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.

Requirements

Determining Key Audit Matters

The auditor shall determine, from the matters communicated with those charged with governance, those matters that required significant auditor attention in performing the audit. In making this determination, the auditor shall take into account the following:

Areas of higher assessed risk of material misstatement, or significant risks identified in accordance with SA 315.5 (Ref: Para. A19–A22)
Significant auditor judgments relating to areas in the financial statements that involved significant management judgment, including accounting estimates that have been identified as having high estimation uncertainty.
The effect on the audit of significant events or transactions that occurred during the period.

The auditor shall determine which of the matters determined in accordance with the above paragraph were of most significance in the audit of the financial statements of the current period and therefore are the key audit matters.

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 (Details available )
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.

Documentation

The auditor shall include in the audit documentation:

The matters that required significant auditor attention as determined in accordance with the standard, and the rationale for the auditor’s determination as to whether or not each of these matters is a key audit matter in accordance with the standard;
Where applicable, the rationale for the auditor’s determination that there are no key audit matters to communicate in the auditor’s report or that the only key audit matters to communicate are those matters addressed by paragraph 15; and
Where applicable, the rationale for the auditor’s determination not to communicate in the auditor’s report a matter determined to be a key audit matter.