New ISA 701 Key Audit Matters
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
📊 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
💡ISA 701
💡Key Audit Matters (KAM)
💡Auditor's Report
💡Communicative Value
💡Auditor's Professional Judgment
💡Charged with Governance
💡Two-Step Decision-Making Framework
💡Disclosures
💡Accounting and Auditing Students
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.
Transcripts
foreign
[Music]
Welcome to our educational video
presentation on the new ISO 701
communicating key audit matters in the
independent Auditor's report
the new Isa 701 is part of a set of new
and revised auditor reporting standards
issued by the international auditing and
Assurance Standards Board these set of
Standards contain significant changes to
the layout and language of the auditor's
report in this video presentation we
will highlight the key aspects of the
new Isa 701 that deals with the
auditor's responsibility to communicate
key audit matters in the independent
Auditor's report
key audit matters are those matters that
in the auditor's professional judgment
were of most significance the
communication of chaotic matters in the
auditor's report is intended for the
auditor to highlight information about
matters of most significance in the
audit
[Music]
the concept of Cam is at the heart of
the new Auditor's report that will
definitely enhance the communicative
value of the auditor's report the
communication of Cam is expected to
increase transparency provide a basis
for users to further engage with the
management increased attention to
disclosures and renew auditor Focus
[Music]
the new Isa 701 provides a two-step
decision-making framework based on
Auditor's professional judgment to
determine which matters are cam for a
particular audit engagement
the first step in determining cam is for
the auditor to determine from the
matters that were communicated with
those charged with governance those
matters that require significant auditor
attention
the second step is for the auditor to
determine which of those matters were of
most significance in the audit of
financial statements for the current
period and therefore are the chaotic
matters
[Music]
foreign
in a separate section of the auditor's
report the auditor shall describe each
key audit matter with reference to the
related disclosures and the financial
statements and explain why the matter
was considered to be one of most
significance and how the matter was
addressed in the audit
the description of the camsheet provide
a balanced explanation of the matter the
level of detail in the description and
the Order of presentation of each of the
cam depend on the auditor's professional
judgment the iaasb allows flexibility in
the description of Cam to enable
Auditors to be as entity-specific and
audit specific as possible
thank you
[Music]
as a final note accounting and auditing
students need to fully understand the
fundamentals of the profession they are
aspiring to join and that includes being
aware of current issues such as the
changes in the structure and content of
the audit report
[Music]
this educational video presentation is
an initiative of the center for
accounting and financial education Cafe
Project X
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