SA 701 Communicating Key Audit Matters in the Independent Auditor’s Report

SA 701 is intended for addressing Judgment as to what is required to be communicated to

members and content and form of such communication. The purpose of introduction of this
standard is to
a) Enhance value of report by offering better transparency about way in which audit is
conducted
b) offer additional information to users of Financial Statements in understanding matters
which professional in judgement of auditor are of critical importance in audit
c) to assist the users of financial statements to understand the entity and areas of crucial
management judgment in such audited financial statements
However, communicating the key audit matters in auditor’s report is:
a) Not substitute for disclosures in financial statements as per applicable FRF or for
achieving fair presentation
b) Not a substitute for expressing a modified opinion
c) Not a substitute to report as per SA 570 when going concern is affected
d) Not a separate opinion on individual matters

Determining Key audit Matters

The auditor should determine, from matters communicated with TCWG, those matters which
mandated significant attention of auditor in executing audit. Auditor should consider
following.
a) Areas pertaining to higher assessed RMM
b) Substantial Judgments of auditor regarding areas in Financial statements which had
noteworthy Management judgements that includes A/c estimates with high
uncertainty
The auditor should conclude which matters determined as per the aforesaid criteria are the
most significant ones
Some Examples of Key Audit Matters
a) Certain complex matters relating to revenue recognition
b) Provisions and contingencies
c) Taxation matters (Multiple tax jurisdictions, uncertain tax positions, deferred tax
assets)
d) Assessment of impairment
Communicating Key Audit Matters
Auditor should describe each of the key audit matter, with the help of a suitable subheading,
in the separate section of his/her audit report under “Key Audit Matters”.
1) The descriptions of each of the key audit matter should have reference to related
disclosures (if any), in financial statements and should address:
a) Why such matter(s) was determined to be significant in the audit and consequently
considered to be the key audit matter;
 b) How such matter(s) was addressed in such audit
2) An auditor should describe each of the key audit matter in his/her report unless:
(a) Any laws or regulations prevent public disclosure of such matter;
(b) In very rare scenarios, the auditor considers that such matter shouldn’t be
communicated in his/her report since the adverse outcome of doing that would
reasonably outweigh the benefits of public interest with such communication.
3) In case the there are no key audit matters for communicating, the auditor should provide a
statement separately in a section to this effect in his/her report under “Key Audits Matters”.

Communication with Person(s) Charged with Governance

An auditor should communicate with TCWG
(a) Matters which the auditor considers key audit matters
(b) In cases where there are no key audit matters for the purpose of communicating in his/her
report

Documentation
Auditor should document
a) Matters which required his/her significant attention and the basis for determining
them as a key audit matter
b) Basis for determining that there are no key audit matters
c) Where applicable, basis in determining not to communicate in report a matter which
was considered to be a key audit matter