Acca aaa s21 Notes

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4. ISA 701 Communicating Key Audit Matters in the 
Independent Auditor's Report
The first thing to note is that the auditor only reports on key audit matters (‘KAMs’) in respect of listed 
entities.
The auditor shall determine, from the matters communicated with those charged with governance, 
those matters that required significant auditor attention in performing the audit. In making this 
determination, the auditor shall take into account the following: 
(1)
Areas of higher assessed risk of material misstatement or significant risks (see Chapter 10).
(2)
Significant auditor judgments relating to areas in the financial statements that involved 
significant management judgment, including accounting estimates that have been identified as 
having high estimation uncertainty.
(3)
The effect on the audit of significant events or transactions that occurred during the period. 
The auditor therefore selects only those matters that were of most significance in the audit of the 
financial statements of the current period and therefore are the 
key audit matters.
Key audit matters are therefore identified by:
๏
Starting with all matters communicated with those charged with governance 
๏
Determining the matters that required significant auditor attention in performing the audit.
๏
The most significant of these are the KAMs.
If the auditor disclaims an opinion on the financial statements (i.e. very rarely), there will be no KAMs 
section in the auditor's report because the auditor has not obtained the evidence necessary to form 
an opinion.