New ISA 701 Key Audit Matters

cafeprojectX cafeprojectx

4 Apr 201603:53

Summary

TLDRThis educational video discusses the new ISO 701 standard, which introduces significant changes to the auditor's report layout and language. It focuses on the auditor's responsibility to communicate Key Audit Matters (KAM), which are of most significance in the audit. The video explains the two-step decision-making process to identify KAM and emphasizes the importance of transparency and increased engagement with management. It also highlights the flexibility allowed in describing KAM to ensure entity and audit specificity.

Takeaways

📚 The new ISA 701 is part of a series of standards aimed at improving the auditor's report by communicating key audit matters (KAM).
🔍 KAM are issues that the auditor deems most significant and are communicated to highlight the most critical aspects of the audit.
🌟 The concept of KAM is central to the new auditor's report, enhancing its communicative value and transparency.
🤔 The new standards are designed to encourage dialogue between users, management, and auditors, focusing on disclosures and audit quality.
🛠️ ISA 701 introduces a two-step process for identifying KAM based on the auditor's professional judgment.
👀 The first step involves determining matters that require significant auditor attention from those communicated with governance.
🔑 The second step identifies which of these matters are of most significance in the current period's financial statement audit.
📑 In the auditor's report, each KAM must be described, referenced to related disclosures, and explained for its significance and audit approach.
📈 The level of detail and order of presentation for each KAM is at the auditor's discretion, allowing for entity- and audit-specific descriptions.
🎓 For accounting and auditing students, understanding the fundamentals of the profession includes staying informed about changes in audit report structure and content.

Q & A

What is the purpose of the new ISA 701 standard?
-The new ISA 701 standard is designed to enhance the communicative value of the auditor's report by requiring auditors to communicate key audit matters (KAM) in the independent auditor's report.
What are Key Audit Matters (KAM)?
-Key Audit Matters are those matters that, in the auditor's professional judgment, were of most significance during the audit of the financial statements.
How does the communication of KAM in the auditor's report benefit stakeholders?
-The communication of KAM is intended to increase transparency, provide a basis for users to further engage with management, increase attention to disclosures, and renew auditor focus.
What is the two-step decision-making framework for determining KAM as outlined in ISA 701?
-The first step is for the auditor to determine from the matters communicated with those charged with governance which matters require significant auditor attention. The second step is to determine which of those matters were of most significance in the audit of financial statements for the current period.
Where in the auditor's report should the auditor describe each KAM?
-The auditor should describe each KAM in a separate section of the auditor's report.
What should the auditor explain when describing each KAM in the report?
-The auditor should explain why the matter was considered to be one of most significance and how the matter was addressed in the audit.
What does the ISA 701 standard allow for in terms of the description of KAM?
-The ISA 701 standard allows flexibility in the description of KAM to enable auditors to be as entity-specific and audit-specific as possible.
Why is it important for accounting and auditing students to understand the new ISA 701 standard?
-Understanding the new ISA 701 standard is important for accounting and auditing students as it includes being aware of current issues such as changes in the structure and content of the audit report, which are fundamental to the profession they aspire to join.
Who issued the new and revised auditor reporting standards, including ISA 701?
-The new and revised auditor reporting standards, including ISA 701, were issued by the International Auditing and Assurance Standards Board.
What does the acronym 'CAFE' stand for in the context of this script?
-In the context of this script, 'CAFE' stands for the Center for Accounting and Financial Education, which is an initiative behind this educational video presentation.
What is the significance of the separate section for KAM in the auditor's report?
-The separate section for KAM in the auditor's report is significant as it provides a focused and transparent communication about the most critical audit areas, enhancing the report's usefulness to users.

Outlines

00:00

📊 Introduction to ISA 701: Communicating Key Audit Matters

This educational video introduces the new ISA 701 standard, which is part of a series of revised auditor reporting standards aimed at enhancing the communication of key audit matters (KAM) in the independent auditor's report. The video emphasizes the importance of KAM, which are significant issues determined by the auditor's professional judgment. The new standard is designed to increase transparency, encourage engagement between users and management, and focus auditors on critical areas. It outlines a two-step framework for identifying KAM based on the auditor's professional judgment, starting with matters communicated to those charged with governance and then determining which are of most significance in the current period's financial statement audit.

Mindmap

Keywords

💡ISO 701

ISO 701 is a standard that pertains to the communication of key audit matters in the independent auditor's report. It is part of a set of new and revised auditor reporting standards aimed at enhancing the clarity and usefulness of audit reports. In the video, ISO 701 is central to the discussion as it introduces significant changes to the way auditors communicate critical issues identified during an audit, thereby increasing the report's communicative value.

💡ISA 701

ISA 701 is an international auditing standard that corresponds to ISO 701 and governs how auditors should report on key audit matters. It is highlighted in the video as a significant part of the new auditor reporting standards, emphasizing the auditor's responsibility to communicate matters of most significance in the audit. The video explains that ISA 701 introduces a two-step decision-making framework to determine which matters are of most significance.

💡Key Audit Matters (KAM)

Key Audit Matters are issues that the auditor, in their professional judgment, deems to be of most significance during an audit. The video emphasizes that KAMs are intended to provide transparency and are a means for auditors to highlight the most critical aspects of their audit findings. The script mentions that the communication of KAMs is expected to increase user engagement and focus on disclosures.

💡Auditor's Report

The auditor's report is a document that communicates the results of an audit to stakeholders. In the context of the video, the auditor's report is undergoing changes to its layout and language to better communicate key audit matters as per the new ISA 701 standards. The video explains that the new standards will enhance the communicative value of the report, making it more informative for users.

💡Communicative Value

Communicative value refers to the effectiveness of a report in conveying information that is useful to its users. The video highlights that the new ISA 701 standard is designed to enhance the communicative value of the auditor's report by requiring the communication of key audit matters, which are expected to provide a more transparent and engaging audit report.

💡Auditor's Professional Judgment

Auditor's professional judgment is the expertise and discretion an auditor uses to make decisions during an audit. The video script mentions that ISA 701 provides a framework based on the auditor's professional judgment to determine which matters are of most significance and should be communicated as key audit matters.

💡Charged with Governance

Charged with governance refers to individuals or bodies with the responsibility to oversee the strategic direction and management of an entity. In the video, it is mentioned that auditors communicate with those charged with governance about matters that require significant auditor attention, which is part of the process to determine key audit matters.

💡Two-Step Decision-Making Framework

The two-step decision-making framework is a process outlined in ISA 701 for auditors to determine key audit matters. The video explains that the first step involves identifying matters that require significant auditor attention, and the second step is to determine which of these are of most significance to the audit of the financial statements for the current period.

💡Disclosures

Disclosures are the information provided by a company in its financial reports that is intended to inform users about the company's financial position and performance. The video script emphasizes the increased attention to disclosures as a result of the new ISA 701 standards, which aim to make the auditor's report more transparent and informative.

💡Accounting and Auditing Students

Accounting and auditing students are individuals studying to become professional accountants or auditors. The video concludes by addressing these students, emphasizing the importance of understanding the fundamentals of the profession, including being aware of changes in audit report standards like those introduced by ISA 701.

Highlights

Introduction to the new ISO 701 standard for communicating key audit matters in the independent auditor's report.

ISO 701 is part of a series of new and revised auditor reporting standards issued by the International Auditing and Assurance Standards Board.

The new standards bring significant changes to the layout and language of the auditor's report.

Key audit matters (KAM) are defined as those matters of most significance in the auditor's professional judgment.

Communication of KAM is intended to highlight information about the most significant matters in the audit.

The concept of KAM is central to the new auditor's report, aiming to enhance its communicative value.

KAM communication is expected to increase transparency and provide a basis for stakeholders to engage with management.

The new ISA 701 provides a two-step decision-making framework for determining KAM based on the auditor's professional judgment.

The first step in determining KAM is to identify matters that require significant auditor attention.

The second step is to determine which of these matters were of most significance in the current period's financial statement audit.

KAM should be described in a separate section of the auditor's report, with reference to related disclosures and financial statements.

The auditor must explain why each KAM was considered significant and how it was addressed in the audit.

The description of KAM provides a balanced explanation, with the level of detail and order of presentation depending on the auditor's judgment.

The IAASB allows flexibility in the description of KAM to enable auditors to be entity-specific and audit-specific.

Accounting and auditing students need to understand the fundamentals of the profession, including changes in the audit report's structure and content.

This educational video is an initiative of the Center for Accounting and Financial Education (CAFE) Project X.