SA 701: Responsibilities of auditors in communicating key audit matters in their reports are tackled under SA 701.

Introduction

The main objective of SA 701 is to enhance auditor report transparency by supplying additional insights into the audit process. It aids users of financial statements in grasping the critical issues considered by auditors and the significant management judgments within the audited financial records.

It is crucial to note that the communication of key audit matters is not a replacement for the mandatory disclosures as per the financial reporting framework nor for an auditor's modified opinion as outlined in SA 705 (Revised). Neither should it replace reporting on material uncertainties impacting the entity's going concern status in line with SA 570 (Revised). Communicating these matters does not imply individual opinions.

Determining Key Audit Matters

Auditors should identify key audit matters by reflecting on areas with a higher risk of material misstatement or substantial risks per SA 315. They should also assess significant management judgments, particularly those involving high-uncertainty accounting estimates, and significant events or transactions during the period. From these evaluations, auditors pinpoint the most critical matters to communicate.

Communicating Key Audit Matters

Audit reports should feature a distinct section named "Key Audit Matters," where each issue is detailed under an appropriate subheading.

A. Key Audit Matters Not a Substitute for a Modified Opinion

When an auditor modifies their opinion due to a specific issue under SA 705 (Revised), this should not be communicated as a key audit matter.

B. Descriptions of Individual Key Audit Matters

Each key audit matter should be elaborated with reasons for its significance and the approach used to address it.

C. Exceptions for Not Communicating A Key Audit Matter

Auditors should describe each key audit matter unless legal or regulatory prohibitions exist, or when disclosure causes more harm than its public interest benefits.

D. Form and Content of Key Audit Matters Section in Other Circumstances

If auditors determine there are no key audit matters after evaluating the audit and the entity, they should state this separately under "Key Audit Matters" in the report.

Communication with Governance

Auditors are expected to communicate these matters with governance bodies. In the absence of key audit matters, this should be communicated based on the specific audit and entity context.

Documentation

It's imperative for auditors to document significant matters needing attention and their basis for designating them as key audit matters. If there are no key audit matters, the reasoning should be documented. Should auditors decide against communicating a key matter, the rationale must also be recorded.