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

Harbourview plc is a listed company. In planning the audit of its financial statements, the auditor identified revenue recognition on long-term contracts as a significant risk and spent considerable time on it. The auditor is now deciding how ISA 701 applies. Which statement is correct?

Key audit matters are chosen from the matters communicated with those charged with governance, narrowed to those of most significance in the audit of the current period. They do not replace the opinion and are not limited to modified opinions or management discussions.

  1. AKey audit matters are selected from matters communicated with those charged with governance, being those of most significance in the auditCorrect
  2. BKey audit matters are all matters that were discussed with management during the audit
  3. CKey audit matters replace the need for the auditor to express an opinion on the financial statements
  4. DKey audit matters are only matters on which the auditor has modified the opinion

Explanation

ISA 701 requires the auditor to determine, from the matters communicated with those charged with governance, those that required significant auditor attention and then those of most significance in the audit. Discussions with management alone are not the pool, KAMs do not replace the opinion, and they are not limited to modifications.

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