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CA Intermediate · Auditing and Ethics · Audit Report

CA Rohit is the auditor of Anand Pharma Ltd, a listed company. In planning, he identifies the matters that required significant auditor attention, such as valuation of a large receivable from a distributor, and determines which of these were of most significance in the audit. How should these be treated in the audit report under SA 701?

They should be reported as Key Audit Matters in the audit report of the listed company, explaining why each was a KAM and how the auditor addressed it. KAMs do not replace a modified opinion and are not separate opinions on individual matters.

  1. AThey must be reported as Key Audit Matters in the report, describing why each was considered a KAM and how it was addressed, and reporting a KAM is not a substitute for a modified opinionCorrect
  2. BThey are reported only to those charged with governance and never in the audit report
  3. CThey are reported in the Emphasis of Matter paragraph only if the opinion is qualified
  4. DThey are included in the report as a separate opinion on each matter

Explanation

For listed entities, SA 701 requires the auditor to communicate Key Audit Matters, being those of most significance in the audit, and to describe why each is a KAM and how it was addressed. A KAM is not a substitute for a modified opinion and is not a separate opinion on individual matters. Communication to TCWG occurs as well, but it does not replace reporting in the audit report.

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