Updated on: Jun 22nd, 2021
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6 min read
SA 701 deals with the responsibilities of an auditor to communicate the key audit matters in his/her audit report.
SA 701 is intended for addressing both the judgment of an auditor as to what is required to be communicated in his/her audit report and the content and form of such communication. The purpose of communicating key audit matters is:
Communicating the key audit matters in the report of the auditor is with respect to an auditor having formed his/her opinion on financial statements overall. However, communicating the key audit matters in auditor’s report is:
The auditor should determine, from matters communicated with the person(s) charged with governance, those matters which mandated significant attention of the auditor in executing the audit. While determining this, the auditor should take into consideration the followings:
The auditor should conclude which of the matters determined as per the aforesaid criteria are the most significant ones in the audit of financial statements of the relevant period and therefore are key audit matters.
An auditor should describe each of the key audit matter, with the help of a suitable subheading, in the separate section of his/her audit report under “Key Audit Matters”.
A. Key Audit Matters aren’t a substitute to express a modified opinion An auditor shouldn’t communicate the matter in Key Audit Matters part of his/her report when he/she would require modifying the opinion as per SA 705 (Revised) as an end result of the matter.
B. Descriptions of Individual Key Audit Matters The descriptions of each of the key audit matter in Key Audit Matters areas of the report should have reference to related disclosures (if any), in financial statements and should address:
C. Circumstances where a Matter determined as a Key Audit Matter isn’t part of the communication: An auditor should describe each of the key audit matter in his/her report unless:
D. Form and Content of the Key Audit Matters Section in Other Circumstances In case the auditor considers, based on the circumstances and facts of the audit and entity, that there aren’t key audit matters for communicating, the auditor should provide a statement separately in a section to this effect in his/her report under “Key Audit Matters”.
An auditor should communicate with the person(s) charged with governance:
An auditor should include in his/her audit documentation:
SA 701 governs an auditor's responsibility to communicate key audit matters in the audit report to ensure better transparency and understanding for users of financial statements. The auditor must determine and describe significant areas of focus during the audit process. Key audit matters are not a substitute for other disclosures or modified opinions. Communication with governance, documentation, and specific descriptions are critical aspects of this process.