CA Intermediate · Auditing and Ethics · Audit Report
In the audit of Sundaram Pharma Ltd (a listed company), the auditor determines that a matter of most significance in the audit, relating to revenue recognition on bill-and-hold sales, was discussed with those charged with governance. The auditor issues an unmodified opinion. Under SA 701, where should this matter be communicated?
The matter should appear in the Key Audit Matters section of the auditor's report, explaining why it was of most significance and how the audit addressed it. SA 701 requires this for listed entities, and it does not qualify the opinion.
- AIn the Key Audit Matters section of the auditor's report, describing why it was a KAM and how it was addressedCorrect
- BIn the Basis for Opinion section as a qualification
- COnly in the management representation letter
- DIn the Other Matter paragraph, since it relates to revenue
Explanation
SA 701 requires KAMs, being matters of most significance in the audit selected from those communicated with those charged with governance, to be described in a separate Key Audit Matters section for listed entities. The description covers why the matter was a KAM and how it was addressed. It is not a qualification and is not confined to a representation letter.
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