Skip to content

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

Kestrel plc, a listed company, has an audit in which the auditor concluded that inventory valuation was a key audit matter. Management asks that the KAM description be omitted because disclosure would embarrass the company with its bank. No law prohibits disclosure and no extremely rare circumstances exist. What should the auditor do?

The auditor should include the key audit matter. Omission is allowed only when law precludes disclosure or, in extremely rare cases, harm clearly outweighs public interest benefit. Embarrassment to the company or management preference is not a valid reason.

  1. AOmit the KAM because management is responsible for the content of the report
  2. BInclude the KAM, as adverse consequences to the entity alone do not justify omissionCorrect
  3. CReplace the KAM with an Other Matter paragraph
  4. DInclude the KAM only if the audit committee agrees

Explanation

ISA 701 permits omission only where law or regulation precludes public disclosure or, in extremely rare cases, where adverse consequences would reasonably be expected to outweigh the public interest benefits. Embarrassment to the entity does not qualify. The auditor decides the KAMs, not management or the audit committee.

Did you get it right without looking?

One question tells you little. A timed set on Auditor's reports shows your real accuracy, how long you take and where you lose marks.

Practise Auditor's reportsFree diagnostic mock

More Auditor's reports questions