I. ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report.
This standard is required to be applied to the audit of all listed entities. The objectives of ISA 701 are for the auditor to: determine those matters which are to be regarded as KAM; and
communicate those matters in the auditor’s report.
The term ‘key audit matters’ is defined in ISA 701 as:
"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"
DETERMINATION OF KAM
The definition in paragraph 8 of ISA 701 states that KAM are selected from matters which are communicated with those charged with governance. Matters which are discussed with those charged with governance are then evaluated by the auditor who then determines those matters which required significant auditor attention during the course of the audit. There are three matters which the ISA requires the auditor to take into account when making this determination:
Areas which were considered to be susceptible to higher risks of material misstatement or which were deemed to be ‘significant risks’ in accordance with ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.
Significant auditor judgments in relation to areas of the financial statements that involved significant management judgment. This might include accounting estimates which have been identified by the auditor as having a high degree of estimation uncertainty.
The effect on the audit of significant events or transactions that have taken place during the period.
The auditor must determine which matters are of most significance in the audit of the financial statements and these will be regarded as KAM.
COMMUNICATING KAM
Once the auditor has determined which matters will be included as KAM, the auditor must ensure that each matter is appropriately described in the auditor’s report including a description of:
Why the matter was determined to be one of most significance and therefore a key audit matter, and
How the matter was addressed in the audit (which may include a description of the auditor’s approach, a brief overview of procedures performed with an indication of their outcome and any other key observations in respect of the matter).
II. ISA 570 (Revised)
If the use of the going concern basis of accounting is appropriate but a material uncertainty exists and management have included adequate disclosures relating to the material uncertainties the auditor will continue to express an unmodified opinion, but the auditor must include a separate section under the heading ‘Material Uncertainty Related to Going Concern’ and:
* draw attention to the note in the financial statements that discloses the matters giving rise to the material uncertainty, and
* state that these events or conditions indicate that a material uncertainty exists which may cast significant doubt on the entity’s ability to continue as a going concern and that the auditor’s opinion is not modified in respect of the matter.
Appendix 1: Overview of content of the new IAASB reporting model
Opinion: The audit opinion and identification of what’s been audited will now be the first section of the report.
Basis for Opinion: The Basis for Opinion will directly follow the Opinion section and, in addition to referring to compliance with the ISAs and referring to the auditor’s responsibilities section, will now include the new assertion of the auditor’s independence. If the audit opinion has been modified, the explanation would be here too.
Material uncertainty regarding going concern (if any): If there is a material uncertainty with respect to going concern, it will now be described in a separate section that identifies it as such.
Emphasis paragraphs (if any): An emphasis of matter paragraph may be next if, for example, it is relevant to understanding the financial reporting framework, or it might follow the key audit matters if it relates to a matter also addressed in that section.
Key audit matters: The new section providing insight into the key matters addressed in the audit will be required for audits of listed companies, but can also be included voluntarily by others.
Other matter paragraph (if any): The placement of an Other Matter paragraph could be here if it relates to the financial statement audit only, or later in the report if it relates to other legal or regulatory requirements, or both.
Other information: A new section in the auditor’s report will describe the auditor’s responsibilities for “other information” (e.g., the rest of the annual report, including the management report) and the outcome of fulfilling those responsibilities.
Responsibilities for the financial statements: The description of management’s responsibilities will be expanded to explain its responsibilities with respect to going concern. It will also now identify those charged with governance (if different from management).
Auditor’s responsibilities: The description of the auditor’s responsibilities under the ISAs is now much more comprehensive and includes a description of the auditor’s responsibilities with respect to going concern.
Date, address and signature: In addition to the signature, address and date, auditor’s reports for listed companies will now also have to identify the engagement partner’s name.
Appendix 2: Overview of content of the Vietnamese Standards Audit reporting model (VSA700, VSA 705)
Boards of Directors' responsibilities:
Auditor’s responsibilities:
Basis for Opinion: If modified reports
Opinions:
Emphasis paragraphs (if any):
Other matter paragraph (if any):
Date, address and signature: with both a certified partner of audit firm and a certified auditor.
Conclusion:
Based on new standards, IAS is undoubtedly more added value for stake holders than VSA. Some queueing is different, some new sections including KAM, Material uncertainty regarding going concern, Other information on ISA supplies more information. Thus, investors give efficient economic making decisions.
Referred and Written by:
ACCASHARERS
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