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CA Intermediate · Auditing and Ethics · Audit Report

Auditor of Sagar Foods Ltd, a listed company, is evaluating which matters to report as Key Audit Matters (KAMs) under SA 701. Which statement reflects the correct approach?

KAMs are those matters that, in the auditor's professional judgement, were of most significance in the audit, selected from matters communicated with those charged with governance. SA 701 applies mainly to listed entities, and KAMs neither replace a modified opinion nor serve as separate opinions on individual matters.

  1. AKAMs are matters that required significant auditor attention and are selected from those communicated with those charged with governanceCorrect
  2. BKAMs must be reported for every audit of every company, including small private companies
  3. CReporting a KAM is a substitute for modifying the opinion on a matter with a material misstatement
  4. DKAMs are a separate opinion on individual matters in the financial statements

Explanation

SA 701 defines KAMs as matters of most significance in the audit, chosen from those communicated with those charged with governance. They apply mainly to listed entities or where the auditor decides to communicate them. They are not a substitute for modification and are not separate opinions.

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