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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Auditor's reports

Brightwater Co is a listed company. The auditor, Marcus, has formed an unmodified opinion. During the audit, Marcus spent considerable time on valuation of the company's goodwill, which management and those charged with governance also discussed extensively. Which statement best reflects how Marcus should determine and report key audit matters (KAMs) under ISA 701?

KAMs are selected from matters communicated to those charged with governance as being of most significance in the audit. Each one is described, explaining why it was a key matter and how the auditor addressed it. They are not separate opinions and do not require a misstatement.

  1. AKAMs are chosen from matters communicated with those charged with governance, being those of most significance in the audit, and each is described with why it was a KAM and how it was addressedCorrect
  2. BKAMs are all matters communicated to those charged with governance, listed without explanation of audit response
  3. CKAMs are matters on which the auditor provides a separate opinion to users
  4. DKAMs are only included if the auditor decides that the financial statements contain a material misstatement

Explanation

ISA 701 requires the auditor to select, from matters communicated with those charged with governance, those requiring significant auditor attention and of most significance. Each KAM must explain why it was a KAM and how it was addressed. KAMs are not a separate opinion and do not depend on misstatement.

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