CPA in Transit Reviewer: Key Audit Matters (PSA 701R)
2017-2018 ed.
I. KEY AUDIT MATTERS
These are matters that, in the auditor’s
judgement, were of most significant in the
audit of the current period. Key audit
matters are selected from matters
communicated to those charged with
governance.
A) PURPOSE
It is to enhance the communication value of
the auditor’s report through greater
transparency.
It may also assist the users in understanding
the entity and areas of significant
management judgment.
B) SCOPE
PSA 701R only applies to complete sets of
general purpose financial statements of
listed entities, circumstances where the
auditor decides that it is necessary, and if it
is required by law.
Key audit matter is not a substitute for:
a. Disclosures
b. Expressing a modified opinion
c. Reporting for Going Concern
d. It is not a separate opinion on
individual matters
II. DETERMINING KEY AUDIT MATTERS
The auditor shall take into account the
following in determining key audit matters
that required significant auditor attention:
a. Areas of higher or significant risk of
material misstatement
b. Areas that involved significant
management judgement
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AUDITING
c. Effect on the audit of events or
transactions occurred during the
period
NOTE: determination of key audit matters is
based on the results of the audit or evidence
obtained.
Significant Auditor Attention
A concept that recognizes that an audit is
risk-based and identifying risks of material
misstatement, designing audit procedures,
and obtaining audit evidence.
Areas of significant auditor attention relates
to areas of complexity and significant
management judgment in the financial
statements, and therefore often involve
difficult or complex auditor judgments.
Matters of Most Significance
Matters that required significant auditor
attention may have resulted in significant
interaction with those charged with
governance. The nature and extent of
communication about such matters with
those charged with governance often
provides an indication of which matters are
of most significance in the audit.
Other considerations in identifying key
audit matters:
 Importance to intended user’s
understanding
 Nature of the accounting policy
relating the matter
 Nature and materiality of corrected
and uncorrected misstatements
 Nature and extent of audit effort
needed to address the matter
 Nature and severity of difficulties in
applying audit procedures,
evaluating results, and obtaining
evidences
 CPA in Transit Reviewer: Key Audit Matters (PSA 701R)
2017-2018 ed.
 Severity of control deficiencies
relevant to the matter
 When matter involves a number of
significant audit consideration
III. COMMUNICATING KEY AUDIT
MATTERS
The auditor shall describe each audit
matter, using an appropriate subheading,
under the “Key Audit Matters” paragraph.
Placing the separate Key Audit Matters
section close to the auditor’s opinion may
give prominence to such information and
acknowledge the perceived value of
engagement-specific information to
intended users.
Introductory Paragraph
The Introductory paragraph shall state that:
1. Key audit matters are those that
were of most significant in the audit
2. Matters addressed were in the
context of the audit of the financial
statements as a whole, and auditor
does not provide a separate opinion
on these matters.
NOTE: When comparative financial
information is presented, the introductory
language draws attention to the fact that
key audit matters describe relate to only the
audit of financial statements of the current
period, and may include reference to
specific periods.
Not a Substitute for a Modified Opinion
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The auditor shall not communicate a matter
in the Key Audit Matters section of the when
the auditor issued a modified opinion.
Description of Individual Key Audit
Matters
The description of each key audit matter in
the auditor’s report shall include a reference
to the related disclosure, if any, in the
financial statements and shall address:
a. Why the matter was most significant
b. How the matter was addressed
Relating a matter directly to the specific
circumstances of the entity may also help to
minimize the potential that such
descriptions become overly standardized
and less useful over time.
Original Information
These are information about the entity not
publicly available. It is inappropriate for an
auditor to describe using original
information.
When such information is determined to be
necessary, the auditor may encourage
management or those charged with
governance to disclose additional
information, rather than the auditor
providing original information in the
auditor’s report.
IV. DOCUMENTATION
The auditor is required to prepare a
documentation that is sufficient to enable
an experienced auditor to understand
significant professional judgement.
The auditor shall include in the audit
documentation:
 CPA in Transit Reviewer: Key Audit Matters (PSA 701R) 3
2017-2018 ed. AUDITING
a. Matters that require significant audit
attention and its rationale
b. Where applicable, rationale that
there is no key audit matters
c. Where applicable, rationale for not
communicating a matter
determined to be a key audit matter.

It does not require the auditor to document

why other matters communicated with
those charged with governance were not
matters that required significant auditor
attention.

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