New ISA 701 Key Audit Matters

Summary

This 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.