Auditing standard ASA701
Auditing standard ASA701(Communicating Key Audit Matters)
According to AASB, The new Auditing Standard ASA701 operative for financial reporting periods ending on or after 15th December 2016 is required by the legislation to be included in independent auditor’s report and its aim is to develop standards that are of highest quality and have a clear public interest. ASA 701 communicating key audit matters is Australian equivalent of ISA 701 and the difference is that it has been developed more to suit for Australian legislation.
This standard requires explanations of material related to Key Audit Matters which reflects AUASB’s commitment to adapt with enhanced changes to auditor’s report developed by IAASB. The changes features making to compulsion to communicate KAM in auditor’s report. ASA701 applies to audit of financial report for a financial year or half yearly report or a complete set of financial statements. It also applies to audit of historical financial information. ASA 701 ties the responsibility to auditors to communicate key audit matters in the auditor’s report.
The goal of communicating key audit matters is to improve the communication to the intended user by providing transparency of the audit. KAM also offers the benefit of providing surplus information to its users by helping them to understand the matters that were significant in the audit report. It provides the financial report’s users to understand the important are of management judgement in the audited financial report. The communication of key audit matter also provides the end user a base to involve with management about different matters related to the company, its financial reports and the process of audit.
AASB has stated that ASA 701 are applied on financial reports of listed companies and when the auditor thinks its necessary to communicate KAM in auditor’s report. Other rules of its application is when it’s required by the law.
Determination of key audit matters depend on auditor. The auditor shall while communicating key audit matters should consider areas of higher risk of misstatement of material or significant risk that has been identified according to ASA 315. Auditors should also take into consideration relating to areas in the financial report that involved high management judgments such as estimates of accounting that have high uncertainty(AASB).
When communicating KAM, auditor should describe each KAM using subheading in the separate section under the Heading “Key Audit Matters”