SINGAPORE

STANDARD
ON AUDITING

SSA 701

Communicating Key Audit Matters

in the Independent Auditors Report
This SSA is effective for audits of financial statements for periods ending
on or after 15 December 2016.
Singapore Standard on Auditing (SSA) 701, Communicating Key Audit
Matters in the Independent Auditors Report is based on International
Standard on Auditing (ISA) 701, Communicating Key Audit Matters in the
Independent Auditors Report of the International Auditing and Assurance
Standards Board (IAASB), published by the International Federation of
Accountants (IFAC) in January 2015 and is used with permission of
IFAC.
International Standard on Auditing 701, Communicating Key Audit
Matters in the Independent Auditors Report January 2015 by the
International Federation of Accountants.

SINGAPORE STANDARD ON AUDITING 701

COMMUNICATING KEY AUDIT MATTERS IN THE INDEPENDENT
AUDITORS REPORT
(Effective for audits of financial statements for periods ending on or after 15 December 2016)

CONTENTS
Paragraph
Introduction
Scope of this SSA

15

Effective Date

Objectives

Definition

Requirements
Determining Key Audit Matters

910

Communicating Key Audit Matters

1116

Communication with Those Charged with Governance

17

Documentation

18

Application and Other Explanatory Material

Scope of this SSA

A1A8

Determining Key Audit Matters

A9A30

Communicating Key Audit Matters

A31A59

Communication with Those Charged with Governance

A60A63

Documentation

A64

Singapore Standard on Auditing (SSA) 701, Communicating Key Audit Matters in the Independent
Auditors Report, should be read in conjunction with SSA 200, Overall Objectives of the Independent
Auditor and the Conduct of an Audit in Accordance with Singapore Standards on Auditing.

SINGAPORE
STANDARD
ON AUDITING

SSA 701

Foreword
This Standard is based on International Standard on Auditing 701, with such amendments as were
considered appropriate for local adoption.

Introduction
Scope of this SSA
1.

This Singapore Standard on Auditing (SSA) deals with the auditors responsibility to
communicate key audit matters in the auditors report. It is intended to address both the
auditors judgement as to what to communicate in the auditors report and the form and content
of such communication.

2.

The purpose of communicating key audit matters is to enhance the communicative value of the
auditors report by providing greater transparency about the audit that was performed.
Communicating key audit matters provides additional information to intended users of the
financial statements (intended users) to assist them in understanding those matters that, in the
auditors professional judgement, were of most significance in the audit of the financial
statements of the current period. Communicating key audit matters may also assist intended
users in understanding the entity and areas of significant management judgement in the audited
financial statements. (Ref: Para. A1A4)

3.

The communication of key audit matters in the auditors report may also provide intended users
a basis to further engage with management and those charged with governance about certain
matters relating to the entity, the audited financial statements, or the audit that was performed.

4.

Communicating key audit matters in the auditors report is in the context of the auditor having
formed an opinion on the financial statements as a whole. Communicating key audit matters in
the auditors report is not:

5.

1
2

(a)

A substitute for disclosures in the financial statements that the applicable financial
reporting framework requires management to make, or that are otherwise necessary to
achieve fair presentation;

(b)

A substitute for the auditor expressing a modified opinion when required by the
1
circumstances of a specific audit engagement in accordance with SSA 705 (Revised);

(c)

A substitute for reporting in accordance with SSA 570 (Revised) when a material
uncertainty exists relating to events or conditions that may cast significant doubt on an
entitys ability to continue as a going concern; or

(d)

A separate opinion on individual matters. (Ref: Para. A5A8)

This SSA applies to audits of complete sets of general purpose financial statements of listed
entities and circumstances when the auditor otherwise decides to communicate key audit
matters in the auditors report. This SSA also applies when the auditor is required by law or

SSA 705 (Revised), Modifications to the Opinion in the Independent Auditors Report
SSA 570 (Revised), Going Concern, paragraphs 2223

regulation to communicate key audit matters in the auditors report. However, SSA 705
(Revised) prohibits the auditor from communicating key audit matters when the auditor
disclaims an opinion on the financial statements, unless such reporting is required by law or
4
regulation.

Effective Date
6.

This SSA is effective for audits of financial statements for periods ending on or after 15
December 2016.

Objectives
7.

The objectives of the auditor are to determine key audit matters and, having formed an opinion
on the financial statements, communicate those matters by describing them in the auditors
report.

Definition
8.

For purposes of the SSAs, the following term has the meaning attributed below:
Key audit mattersThose matters that, in the auditors professional judgement, were of most
significance in the audit of the financial statements of the current period. Key audit matters are
selected from matters communicated with those charged with governance.

Requirements
Determining Key Audit Matters
9.

10.

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: (Ref: Para. A9A18)
(a)

Areas of higher assessed risk of material misstatement, or significant risks identified in

5
accordance with SSA 315 (Revised). (Ref: Para. A19A22)

(b)

Significant auditor judgements relating to areas in the financial statements that involved
significant management judgement, including accounting estimates that have been
identified as having high estimation uncertainty. (Ref: Para. A23A24)

(c)

The effect on the audit of significant events or transactions that occurred during the
period. (Ref: Para. A25A26)

The auditor shall determine which of the matters determined in accordance with paragraph 9
were of most significance in the audit of the financial statements of the current period and
therefore are the key audit matters. (Ref: Para. A9A11, A27A30)

Communicating Key Audit Matters

11.

3
4
5

The auditor shall describe each key audit matter, using an appropriate subheading, in a
separate section of the auditors report under the heading Key Audit Matters, unless the
circumstances in paragraphs 14 or 15 apply. The introductory language in this section of the
auditors report shall state that:

SSA 700 (Revised), Forming an Opinion and Reporting on Financial Statements, paragraphs 3031
SSA 705 (Revised), paragraph 29
SSA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its
Environment

(a)

Key audit matters are those matters that, in the auditors professional judgement, were of
most significance in the audit of the financial statements [of the current period]; and

(b)

These matters were addressed in the context of the audit of the financial statements as a
whole, and in forming the auditors opinion thereon, and the auditor does not provide a
separate opinion on these matters. (Ref: Para. A31A33)

Key Audit Matters Not a Substitute for Expressing a Modified Opinion

12.

The auditor shall not communicate a matter in the Key Audit Matters section of the auditors
report when the auditor would be required to modify the opinion in accordance with SSA 705
(Revised) as a result of the matter. (Ref: Para. A5)

Descriptions of Individual Key Audit Matters

13.

The description of each key audit matter in the Key Audit Matters section of the auditors report
shall include a reference to the related disclosure(s), if any, in the financial statements and shall
address: (Ref: Para. A34A41)
(a)

Why the matter was considered to be one of most significance in the audit and therefore
determined to be a key audit matter; and (Ref: Para. A42A45)

(b)

How the matter was addressed in the audit. (Ref: Para. A46A51)

Circumstances in Which a Matter Determined to Be a Key Audit Matter Is Not

Communicated in the Auditors Report
14.

The auditor shall describe each key audit matter in the auditors report unless: (Ref: Para. A53
A56)
(a)

Law or regulation precludes public disclosure about the matter; or (Ref: Para. A52)

(b)

In extremely rare circumstances, the auditor determines that the matter should not be
communicated in the auditors report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such
communication. This shall not apply if the entity has publicly disclosed information about
the matter.

Interaction between Descriptions of Key Audit Matters and Other Elements Required to Be
Included in the Auditors Report
15.

A matter giving rise to a modified opinion in accordance with SSA 705 (Revised), or a material
uncertainty related to events or conditions that may cast significant doubt on the entitys ability
to continue as a going concern in accordance with SSA 570 (Revised), are by their nature key
audit matters. However, in such circumstances, these matters shall not be described in the Key
Audit Matters section of the auditors report and the requirements in paragraphs 1314 do not
apply. Rather, the auditor shall:
(a)

Report on these matter(s) in accordance with the applicable SSA(s); and

(b)

Include a reference to the Basis for Qualified (Adverse) Opinion or the Material Uncertainty
Related to Going Concern section(s) in the Key Audit Matters section. (Ref: Para. A6A7)

Form and Content of the Key Audit Matters Section in Other Circumstances
16.

If the auditor determines, depending on the facts and circumstances of the entity and the audit,
that there are no key audit matters to communicate or that the only key audit matters
communicated are those matters addressed by paragraph 15, the auditor shall include a
statement to this effect in a separate section of the auditors report under the heading Key
5

Audit Matters. (Ref: Para. A57A59)

Communication with Those Charged with Governance

17.

The auditor shall communicate with those charged with governance:

(a)

Those matters the auditor has determined to be the key audit matters; or

(b)

If applicable, depending on the facts and circumstances of the entity and the audit, the
auditors determination that there are no key audit matters to communicate in the auditors
report. (Ref: Para. A60A63)

Documentation
18.

The auditor shall include in the audit documentation: (Ref: Para. A64)
(a)

The matters that required significant auditor attention as determined in accordance with
paragraph 9, and the rationale for the auditors determination as to whether or not each of
these matters is a key audit matter in accordance with paragraph 10;

(b)

Where applicable, the rationale for the auditors determination that there are no key audit
matters to communicate in the auditors report or that the only key audit matters to
communicate are those matters addressed by paragraph 15; and

(c)

Where applicable, the rationale for the auditors determination not to communicate in the
auditors report a matter determined to be a key audit matter.

***

SSA 230, Audit Documentation, paragraphs 811 and A6

Application and Other Explanatory Material

Scope of this SSA (Ref: Para. 2)
A1.

Significance can be described as the relative importance of a matter, taken in context. The
significance of a matter is judged by the auditor in the context in which it is being considered.
Significance can be considered in the context of quantitative and qualitative factors, such as
relative magnitude, the nature and effect on the subject matter and the expressed interests of
intended users or recipients. This involves an objective analysis of the facts and circumstances,
including the nature and extent of communication with those charged with governance.

A2.

Users of financial statements have expressed an interest in those matters about which the
auditor had the most robust dialogue with those charged with governance as part of the two7
way communication required by SSA 260 (Revised) and have called for additional
transparency about those communications. For example, users have expressed particular
interest in understanding significant judgements made by the auditor in forming the opinion on
the financial statements as a whole, because they are often related to the areas of significant
management judgement in preparing the financial statements.

A3.

Requiring auditors to communicate key audit matters in the auditors report may also enhance
communications between the auditor and those charged with governance about those matters,
and may increase attention by management and those charged with governance to the
disclosures in the financial statements to which reference is made in the auditors report.

A4.

SSA 320 explains that it is reasonable for the auditor to assume that users of the financial
statements:

(a)

Have a reasonable knowledge of business and economic activities and accounting and a
willingness to study the information in the financial statements with reasonable diligence;

(b)

Understand that the financial statements are prepared, presented and audited to levels of
materiality;

(c)

Recognise the uncertainties inherent in the measurement of amounts based on the use of
estimates, judgement and the consideration of future events; and

(d)

Make reasonable economic decisions on the basis of the information in the financial
statements.

Because the auditors report accompanies the audited financial statements, the users of the
auditors report are considered to be the same as the intended users of the financial
statements.

7
8

SSA 260 (Revised), Communication with Those Charged with Governance

SSA 320, Materiality in Planning and Performing the Audit, paragraph 4

Relationship between Key Audit Matters, the Auditors Opinion and Other Elements of the
Auditors Report (Ref: Para. 4, 12, 15)
A5.

SSA 700 (Revised) establishes requirements and provides guidance on forming an opinion on
9
the financial statements. Communicating key audit matters is not a substitute for disclosures in
the financial statements that the applicable financial reporting framework requires management
to make, or that are otherwise necessary to achieve fair presentation. SSA 705 (Revised)
addresses circumstances in which the auditor concludes that there is a material misstatement
10
relating to the appropriateness or adequacy of disclosures in the financial statements.

A6.

When the auditor expresses a qualified or adverse opinion in accordance with SSA 705
(Revised), presenting the description of a matter giving rise to a modified opinion in the Basis
for Qualified (Adverse) Opinion section helps to promote intended users understanding and to
identify such circumstances when they occur. Separating the communication of this matter from
other key audit matters described in the Key Audit Matters section therefore gives it the
appropriate prominence in the auditors report (see paragraph 15). The Appendix in SSA 705
(Revised) includes illustrative examples of how the introductory language in the Key Audit
Matters section is affected when the auditor expresses a qualified or adverse opinion and other
key audit matters are communicated in the auditors report. Paragraph A58 of this SSA
illustrates how the Key Audit Matters section is presented when the auditor has determined that
there are no other key audit matters to be communicated in the auditors report beyond matters
addressed in the Basis for Qualified (Adverse) Opinion section or Material Uncertainty Related
to Going Concern section of the auditors report.

A7.

When the auditor expresses a qualified or adverse opinion, communicating other key audit
matters would still be relevant to enhancing intended users understanding of the audit, and
therefore the requirements to determine key audit matters apply. However, as an adverse
opinion is expressed in circumstances when the auditor has concluded that misstatements,
11
individually or in the aggregate, are both material and pervasive to the financial statements:

A8.

9
10
11
12
13
14

Depending on the significance of the matter(s) giving rise to an adverse opinion, the
auditor may determine that no other matters are key audit matters. In such
circumstances, the requirement in paragraph 15 applies (see paragraph A58).

If one or more matters other than the matter(s) giving rise to an adverse opinion are
determined to be key audit matters, it is particularly important that the descriptions of
such other key audit matters do not imply that the financial statements as a whole are
more credible in relation to those matters than would be appropriate in the circumstances,
in view of the adverse opinion (see paragraph A47).
12

SSA 706 (Revised) establishes mechanisms for auditors of financial statements of all entities
to include additional communication in the auditors report through the use of Emphasis of
Matter paragraphs and Other Matter paragraphs when the auditor considers it necessary to do
so. In such cases, these paragraphs are presented separately from the Key Audit Matters
section in the auditors report. When a matter has been determined to be a key audit matter, the
use of such paragraphs is not a substitute for the description of the individual key audit matter
13
in accordance with paragraph 13. SSA 706 (Revised) provides further guidance on the
relationship between key audit matters and Emphasis of Matter paragraphs in accordance with
14
that SSA.

SSA 700 (Revised), paragraphs 1015 and A1A10

See paragraph A7 of SSA 705 (Revised).
SSA 705 (Revised), paragraph 8
SSA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditors Report
See paragraphs 8(b) and 10(b) of SSA 706 (Revised).
SSA 706 (Revised), paragraphs A1A3

Determining Key Audit Matters (Ref: Para. 910)

A9.

The auditors decision-making process in determining key audit matters is designed to select a
smaller number of matters from the matters communicated with those charged with
governance, based on the auditors judgement about which matters were of most significance in
the audit of the financial statements of the current period.

A10. The auditors determination of key audit matters is limited to those matters of most significance
in the audit of the financial statements of the current period, even when comparative financial
statements are presented (i.e., even when the auditors opinion refers to each period for which
15
financial statements are presented).
A11. Notwithstanding that the auditors determination of key audit matters is for the audit of the
financial statements of the current period and this SSA does not require the auditor to update
key audit matters included in the prior periods auditors report, it may nevertheless be useful for
the auditor to consider whether a matter that was a key audit matter in the audit of the financial
statements of the prior period continues to be a key audit matter in the audit of the financial
statements of the current period.

Matters that Required Significant Auditor Attention (Ref: Para. 9)

A12. The concept of significant auditor attention recognises that an audit is risk-based and focuses
on identifying and assessing the risks of material misstatement of the financial statements,
designing and performing audit procedures responsive to those risks, and obtaining audit
evidence that is sufficient and appropriate to provide a basis for the auditors opinion. For a
particular account balance, class of transactions or disclosure, the higher an assessed risk of
material misstatement at the assertion level, the more judgement is often involved in planning and
performing the audit procedures and evaluating the results thereof. In designing further audit
procedures, the auditor is required to obtain more persuasive audit evidence the higher the
16
auditors assessment of risk. When obtaining more persuasive audit evidence because of a
higher assessment of risk, the auditor may increase the quantity of the evidence, or obtain
evidence that is more relevant or reliable, for example, by placing more emphasis on obtaining
third party evidence or by obtaining corroborating evidence from a number of independent
17
sources.
A13. Accordingly, matters that pose challenges to the auditor in obtaining sufficient appropriate audit
evidence or pose challenges to the auditor in forming an opinion on the financial statements
may be particularly relevant in the auditors determination of key audit matters.
A14. Areas of significant auditor attention often relate to areas of complexity and significant
management judgement in the financial statements, and therefore often involve difficult or
complex auditor judgements. In turn, this often affects the auditors overall audit strategy, the
allocation of resources and extent of audit effort in relation to such matters. These effects may
include, for example, the extent of involvement of senior personnel on the audit engagement or
the involvement of an auditors expert or individuals with expertise in a specialised area of
accounting or auditing, whether engaged or employed by the firm to address these areas.
A15. Various SSAs require specific communications with those charged with governance and others
that may relate to areas of significant auditor attention. For example:

15
16
17
18

SSA 260 (Revised) requires the auditor to communicate significant difficulties, if any,
18
The SSAs
encountered during the audit with those charged with governance.
acknowledge potential difficulties in relation to, for example:

See SSA 710, Comparative InformationCorresponding Figures and Comparative Financial Statements.
SSA 330, The Auditors Responses to Assessed Risks, paragraph 7(b)
SSA 330, paragraph A19
SSA 260 (Revised), paragraphs 16(b) and A21

19

Related party transactions, in particular limitations on the auditors ability to obtain

audit evidence that all other aspects of a related party transaction (other than price)
are equivalent to those of a similar arms length transaction.

Limitations on the group audit, for example, where the group engagement teams
20
access to information may have been restricted.

SSA 220 establishes requirements for the engagement partner in relation to undertaking
21
appropriate consultation on difficult or contentious matters. For example, the auditor
may have consulted with others within the firm or outside the firm on a significant
technical matter, which may be an indicator that it is a key audit matter. The engagement
partner is also required to discuss, among other things, significant matters arising during
22
the audit engagement with the engagement quality control reviewer.

Considerations in Determining Those Matters that Required Significant Auditor Attention

(Ref: Para. 9)
A16. The auditor may develop a preliminary view at the planning stage about matters that are likely
to be areas of significant auditor attention in the audit and therefore may be key audit matters.
The auditor may communicate this with those charged with governance when discussing the
planned scope and timing of the audit in accordance with SSA 260 (Revised). However, the
auditors determination of key audit matters is based on the results of the audit or evidence
obtained throughout the audit.
A17. Paragraph 9 includes specific required considerations in the auditors determination of those
matters that required significant auditor attention. These considerations focus on the nature of
matters communicated with those charged with governance that are often linked to matters
disclosed in the financial statements, and are intended to reflect areas of the audit of the
financial statements that may be of particular interest to intended users. The fact that these
considerations are required is not intended to imply that matters related to them are always key
audit matters; rather, matters related to such specific considerations are key audit matters only
if they are determined to be of most significance in the audit in accordance with paragraph 10.
As the considerations may be interrelated (e.g., matters relating to the circumstances described
in paragraphs 9(b)-(c) may also be identified as significant risks), the applicability of more than
one of the considerations to a particular matter communicated with those charged with
governance may increase the likelihood of the auditor identifying that matter as a key audit
matter.
A18. In addition to matters that relate to the specific required considerations in paragraph 9, there
may be other matters communicated with those charged with governance that required
significant auditor attention and that therefore may be determined to be key audit matters in
accordance with paragraph 10. Such matters may include, for example, matters relevant to the
audit that was performed that may not be required to be disclosed in the financial statements.
For example, the implementation of a new IT system (or significant changes to an existing IT
system) during the period may be an area of significant auditor attention, in particular if such a
change had a significant effect on the auditors overall audit strategy or related to a significant
risk (e.g., changes to a system affecting revenue recognition).
Areas of Higher Assessed Risk of Material Misstatement, or Significant Risks Identified in Accordance
with SSA 315 (Revised) (Ref: Para. 9(a))
A19. SSA 260 (Revised) requires the auditor to communicate with those charged with governance
23
about the significant risks identified by the auditor. Paragraph A13 of SSA 260 (Revised)

19
20

21
22
23

SSA 550, Related Parties, paragraph A42

SSA 600, Special ConsiderationsAudits of Group Financial Statements (Including the Work of Component Auditors),
paragraph 49(d)
SSA 220, Quality Control for an Audit of Financial Statements, paragraph 18
SSA 220, paragraph 19
SSA 260 (Revised), paragraph 15

10

explains that the auditor may also communicate with those charged with governance about how
the auditor plans to address areas of higher assessed risks of material misstatement.
A20. SSA 315 (Revised) defines a significant risk as an identified and assessed risk of material
misstatement that, in the auditors judgement, requires special audit consideration. Areas of
significant management judgement and significant unusual transactions may often be identified
as significant risks. Significant risks are therefore often areas that require significant auditor
attention.
A21. However, this may not be the case for all significant risks. For example, SSA 240 presumes that
there are risks of fraud in revenue recognition and requires the auditor to treat those assessed
24
risks of material misstatement due to fraud as significant risks. In addition, SSA 240 indicates
that, due to the unpredictable way in which management override of controls could occur, it is a
25
risk of material misstatement due to fraud and thus a significant risk. Depending on their
nature, these risks may not require significant auditor attention, and therefore would not be
considered in the auditors determination of key audit matters in accordance with paragraph 10.
A22. SSA 315 (Revised) explains that the auditors assessment of the risks of material misstatement
at the assertion level may change during the course of the audit as additional audit evidence is
26
obtained. Revision to the auditors risk assessment and reevaluation of the planned audit
procedures with respect to a particular area of the financial statements (i.e., a significant
change in the audit approach, for example, if the auditors risk assessment was based on an
expectation that certain controls were operating effectively and the auditor has obtained audit
evidence that they were not operating effectively throughout the audit period, particularly in an
area with higher assessed risk of material misstatement) may result in an area being
determined as one requiring significant auditor attention.
Significant Auditor Judgements Relating to Areas in the Financial Statements that Involved Significant
Management Judgement, Including Accounting Estimates that Have Been Identified as Having High
Estimation Uncertainty (Ref: Para. 9(b))
A23. SSA 260 (Revised) requires the auditor to communicate with those charged with governance
the auditors views about significant qualitative aspects of the entitys accounting practices,
27
including accounting policies, accounting estimates and financial statement disclosures. In
many cases, this relates to critical accounting estimates and related disclosures, which are
likely to be areas of significant auditor attention, and also may be identified as significant risks.
A24. However, users of the financial statements have highlighted their interest in accounting
estimates that have been identified as having high estimation uncertainty in accordance with
28
SSA 540 that may have not been determined to be significant risks. Among other things, such
estimates are highly dependent on management judgement and are often the most complex
areas of the financial statements, and may require the involvement of both a managements
expert and an auditors expert. Users have also highlighted that accounting policies that have a
significant effect on the financial statements (and significant changes to those policies) are
relevant to their understanding of the financial statements, especially in circumstances where
an entitys practices are not consistent with others in its industry.
The Effect on the Audit of Significant Events or Transactions that Occurred during the Period (Ref:
Para. 9(c))
A25. Events or transactions that had a significant effect on the financial statements or the audit may
be areas of significant auditor attention and may be identified as significant risks. For example,
the auditor may have had extensive discussions with management and those charged with
governance at various stages throughout the audit about the effect on the financial statements
24
25
26
27
28

SSA 240, The Auditors Responsibilities Relating to Fraud in an Audit of Financial Statements, paragraphs 2627
SSA 240, paragraph 31
SSA 315 (Revised), paragraph 31
SSA 260 (Revised), paragraph 16(a)
See paragraphs 1011 of SSA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and
Related Disclosures.

11

of significant transactions with related parties or significant transactions that are outside the
29
normal course of business for the entity or that otherwise appear to be unusual. Management
may have made difficult or complex judgements in relation to recognition, measurement,
presentation or disclosure of such transactions, which may have had a significant effect on the
auditors overall strategy.
A26. Significant economic, accounting, regulatory, industry, or other developments that affected
managements assumptions or judgements may also affect the auditors overall approach to the
audit and result in a matter requiring significant auditor attention.

Matters of Most Significance (Ref: Para. 10)

A27. Matters that required significant auditor attention also 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. For example, the auditor may have had more in-depth,
frequent or robust interactions with those charged with governance on more difficult and
complex matters, such as the application of significant accounting policies that were the subject
of significant auditor or management judgement.
A28. The concept of matters of most significance is applicable in the context of the entity and the
audit that was performed. As such, the auditors determination and communication of key audit
matters is intended to identify matters specific to the audit and to involve making a judgement
about their importance relative to other matters in the audit.
A29. Other considerations that may be relevant to determining the relative significance of a matter
communicated with those charged with governance and whether such a matter is a key audit
matter include:

The importance of the matter to intended users understanding of the financial statements
as a whole, in particular, its materiality to the financial statements.

The nature of the underlying accounting policy relating to the matter or the complexity or
subjectivity involved in managements selection of an appropriate policy compared to
other entities within its industry.

The nature and materiality, quantitatively or qualitatively, of corrected and accumulated

uncorrected misstatements due to fraud or error related to the matter, if any.

The nature and extent of audit effort needed to address the matter, including

29

The extent of specialised skill or knowledge needed to apply audit procedures to

address the matter or evaluate the results of those procedures, if any.

The nature of consultations outside the engagement team regarding the matter.

The nature and severity of difficulties in applying audit procedures, evaluating the results
of those procedures, and obtaining relevant and reliable evidence on which to base the
auditors opinion, in particular as the auditors judgements become more subjective.

The severity of any control deficiencies identified relevant to the matter.

Whether the matter involved a number of separate, but related, auditing considerations.
For example, long-term contracts may involve significant auditor attention with respect to
revenue recognition, litigation or other contingencies, and may have an effect on other
accounting estimates.

See paragraphs 16(a), 16(c) and A22, and Appendix 2, of SSA 260 (Revised).

12

A30. Determining which, and how many, of those matters that required significant auditor attention
were of most significance in the audit of the financial statements of the current period is a
matter of professional judgement. The number of key audit matters to be included in the
auditors report may be affected by the size and complexity of the entity, the nature of its
business and environment, and the facts and circumstances of the audit engagement. In
general, the greater the number of matters initially determined to be key audit matters, the more
the auditor may need to reconsider whether each of these matters meets the definition of a key
audit matter. Lengthy lists of key audit matters may be contrary to the notion of such matters
being those of most significance in the audit.

Communicating Key Audit Matters

Separate Key Audit Matters Section in the Auditors Report (Ref: Para. 11)
A31. Placing the separate Key Audit Matters section in close proximity to the auditors opinion may
give prominence to such information and acknowledge the perceived value of engagementspecific information to intended users.
A32. The order of presentation of individual matters within the Key Audit Matters section is a matter
of professional judgement. For example, such information may be organised in order of relative
importance, based on the auditors judgement, or may correspond to the manner in which
matters are disclosed in the financial statements. The requirement in paragraph 11 to include
subheadings is intended to further differentiate the matters.
A33. When comparative financial information is presented, the introductory language of the Key Audit
Matters section is tailored to draw attention to the fact that the key audit matters described
relate to only the audit of the financial statements of the current period, and may include
reference to the specific period covered by those financial statements (e.g., for the year ended
31 December 20X1).

Descriptions of Individual Key Audit Matters (Ref: Para. 13)

A34. The adequacy of the description of a key audit matter is a matter of professional judgement.
The description of a key audit matter is intended to provide a succinct and balanced explanation
to enable intended users to understand why the matter was one of most significance in the
audit and how the matter was addressed in the audit. Limiting the use of highly technical
auditing terms also helps to enable intended users who do not have a reasonable knowledge of
auditing to understand the basis for the auditors focus on particular matters during the audit.
The nature and extent of information provided by the auditor is intended to be balanced in the
context of the responsibilities of the respective parties (i.e., for the auditor to provide useful
information in a concise and understandable form, while not inappropriately being the provider
of original information about the entity).
A35. Original information is any information about the entity that has not otherwise been made
publicly available by the entity (e.g., has not been included in the financial statements or other
information available at the date of the auditors report, or addressed in other oral or written
communications by management or those charged with governance, such as a preliminary
announcement of financial information or investor briefings). Such information is the
responsibility of the entitys management and those charged with governance.
A36. It is appropriate for the auditor to seek to avoid the description of a key audit matter
inappropriately providing original information about the entity. The description of a key audit
matter is not usually of itself original information about the entity, as it describes the matter in
the context of the audit. However, the auditor may consider it necessary to include additional
information to explain why the matter was considered to be one of most significance in the audit
and therefore determined to be a key audit matter, and how the matter was addressed in the
audit, provided that disclosure of such information is not precluded by law or regulation. When
such information is determined to be necessary by the auditor, the auditor may encourage
management or those charged with governance to disclose additional information, rather than
the auditor providing original information in the auditors report.
13

A37. Management or those charged with governance may decide to include new or enhanced
disclosures in the financial statements or elsewhere in the annual report relating to a key audit
matter in light of the fact that the matter will be communicated in the auditors report. Such new
or enhanced disclosures, for example, may be included to provide more robust information
about the sensitivity of key assumptions used in accounting estimates or the entitys rationale
for a particular accounting practice or policy when acceptable alternatives exist under the
applicable financial reporting framework.
A38. Although the auditors opinion on the financial statements does not extend to the other
30
information addressed by SSA 720 the auditor may consider this information, as well as other
publicly available communications by the entity or other credible sources, in formulating the
description of a key audit matter.
A39. Audit documentation prepared during the audit can also be useful to the auditor in formulating
the description of a key audit matter. For example, written communications, or the auditors
documentation of oral communications, with those charged with governance and other audit
documentation provides a useful basis for the auditors communication in the auditors report.
This is because audit documentation in accordance with SSA 230 is intended to address the
significant matters arising during the audit, the conclusions reached thereon, and significant
professional judgements made in reaching those conclusions, and serves as a record of the
nature, timing and extent of the audit procedures performed, the results of those procedures,
and the audit evidence obtained. Such documentation may assist the auditor in developing a
description of key audit matters that explains the significance of the matter and also in applying
the requirement in paragraph 18.
Reference to Where the Matter Is Disclosed in the Financial Statements (Ref: Para. 13)
A40. Paragraphs 13(a)-(b) requires the description of each key audit matter to address why the
auditor considered the matter to be one of most significance in the audit and how the matter
was addressed in the audit. Accordingly, the description of key audit matters is not a mere
reiteration of what is disclosed in the financial statements. However, a reference to any related
disclosures enables intended users to further understand how management has addressed the
matter in preparing the financial statements.
A41. In addition to referring to related disclosure(s), the auditor may draw attention to key aspects of
them. The extent of disclosure by management about specific aspects or factors in relation to
how a particular matter is affecting the financial statements of the current period may help the
auditor in pinpointing particular aspects of how the matter was addressed in the audit such that
intended users can understand why the matter is a key audit matter. For example:

30

31

When an entity includes robust disclosure about accounting estimates, the auditor may
draw attention to the disclosure of key assumptions, the disclosure of the range of
possible outcomes, and other qualitative and quantitative disclosures relating to key
sources of estimation uncertainty or critical accounting estimates, as part of addressing
why the matter was one of most significance in the audit and how the matter was
addressed in the audit.

When the auditor concludes in accordance with SSA 570 (Revised) that no material
uncertainty exists relating to events or conditions that may cast significant doubt on the
entitys ability to continue as a going concern, the auditor may nevertheless determine
that one or more matters relating to this conclusion arising from the auditors work effort
under SSA 570 (Revised) are key audit matters. In such circumstances, the auditors
description of such key audit matters in the auditors report could include aspects of the
identified events or conditions disclosed in the financial statements, such as substantial
operating losses, available borrowing facilities and possible debt refinancing, or non31
compliance with loan agreements, and related mitigating factors.

SSA 720, The Auditors Responsibilities Relating to Other Information in Documents Containing Audited Financial
Statements
See paragraph A3 of SSA 570 (Revised).

14

Why the Auditor Considered the Matter to Be One of Most Significance in the Audit (Ref: Para. 13(a))
A42. The description of a key audit matter in the auditors report is intended to provide insight as to
why the matter was determined to be a key audit matter. Accordingly, the requirements in
paragraphs 910 and the application material in paragraphs A12A29 related to determining
key audit matters may also be helpful for the auditor in considering how such matters are to be
communicated in the auditors report. For example, explaining the factors that led the auditor to
conclude that a particular matter required significant auditor attention and was of most
significance in the audit is likely to be of interest to intended users.
A43. The relevance of the information for intended users is a consideration for the auditor in
determining what to include in the description of a key audit matter. This may include whether
the description would enable a better understanding of the audit and the auditors judgements.
A44. Relating a matter directly to the specific circumstances of the entity may also help to minimise
the potential that such descriptions become overly standardised and less useful over time. For
example, certain matters may be determined as key audit matters in a particular industry across
a number of entities due to the circumstances of the industry or the underlying complexity in
financial reporting. In describing why the auditor considered the matter to be one of most
significance, it may be useful for the auditor to highlight aspects specific to the entity (e.g.,
circumstances that affected the underlying judgements made in the financial statements of the
current period) in order to make the description more relevant for intended users. This also may
be important in describing a key audit matter that recurs over periods.
A45. The description may also make reference to the principal considerations that led the auditor, in
the circumstances of the audit, to determine the matter to be one of most significance, for
example:

Economic conditions that affected the auditors ability to obtain audit evidence, for
example illiquid markets for certain financial instruments.

New or emerging accounting policies, for example entity-specific or industry-specific

matters on which the engagement team consulted within the firm.

Changes in the entitys strategy or business model that had a material effect on the
financial statements.

How the Matter Was Addressed in the Audit (Ref: Para. 13(b))
A46. The amount of detail to be provided in the auditors report to describe how a key audit matter
was addressed in the audit is a matter of professional judgement. In accordance with paragraph
13(b), the auditor may describe:

Aspects of the auditors response or approach that were most relevant to the matter or
specific to the assessed risk of material misstatement;

A brief overview of procedures performed;

An indication of the outcome of the auditors procedures; or

Key observations with respect to the matter,

or some combination of these elements.

Law or regulation may prescribe a specific form or content for the description of a key audit
matter, or may specify the inclusion of one or more of these elements.
A47. In order for intended users to understand the significance of a key audit matter in the context of
the audit of the financial statements as a whole, as well as the relationship between key audit
15

matters and other elements of the auditors report, including the auditors opinion, care may be
necessary so that language used in the description of a key audit matter:

Does not imply that the matter has not been appropriately resolved by the auditor in
forming the opinion on the financial statements.

Relates the matter directly to the specific circumstances of the entity, while avoiding
generic or standardised language.

Takes into account how the matter is addressed in the related disclosure(s) in the
financial statements, if any.

Does not contain or imply discrete opinions on separate elements of the financial
statements.

A48. Describing aspects of the auditors response or approach to a matter, in particular when the
audit approach required significant tailoring to the facts and circumstances of the entity, may
assist intended users in understanding unusual circumstances and significant auditor
judgement required to address the risk of material misstatement. In addition, the audit approach
in a particular period may have been influenced by entity-specific circumstances, economic
conditions, or industry developments. It may also be useful for the auditor to make reference to
the nature and extent of communications with those charged with governance about the matter.
A49. For example, in describing the auditors approach to an accounting estimate that has been
identified as having high estimation uncertainty, such as the valuation of complex financial
instruments, the auditor may wish to highlight that the auditor employed or engaged an auditors
expert. Such a reference to the use of an auditors expert does not reduce the auditors
responsibility for the opinion on the financial statements and is therefore not inconsistent with
32
paragraphs 1415 of SSA 620.
A50. There may be challenges in describing the auditors procedures, particularly in complex,
judgemental areas of the audit. In particular, it may be difficult to summarise the procedures
performed in a succinct way that adequately communicates the nature and extent of the
auditors response to the assessed risk of material misstatement, and the significant auditor
judgements involved. Nonetheless, the auditor may consider it necessary to describe certain
procedures performed to communicate how the matter was addressed in the audit. Such
description may typically be at a high level, rather than include a detailed description of
procedures.
A51. As noted in paragraph A46, the auditor may also provide an indication of the outcome of the
auditors response in the description of the key audit matter in the auditors report. However, if
this is done, care is needed to avoid the auditor giving the impression that the description is
conveying a separate opinion on an individual key audit matter or that in any way may call into
question the auditors opinion on the financial statements as a whole.

Circumstances in Which a Matter Determined to Be a Key Audit Matter Is Not

Communicated in the Auditors Report (Ref: Para. 14)
A52. Law or regulation may preclude public disclosure by either management or the auditor about a
specific matter determined to be a key audit matter. For example, law or regulation may
specifically prohibit any public communication that might prejudice an investigation by an
appropriate authority into an actual, or suspected, illegal act (e.g., matters that are or appear to
be related to money laundering).
A53. As indicated by paragraph 14(b), it will be extremely rare for a matter determined to be a key
audit matter not to be communicated in the auditors report. This is because there is presumed
to be a public interest benefit in providing greater transparency about the audit for intended
users. Accordingly, the judgement not to communicate a key audit matter is appropriate only in
32

SSA 620, Using the Work of an Auditors Expert

16

cases when the adverse consequences to the entity or the public as a result of such
communication are viewed as so significant that they would reasonably be expected to
outweigh the public interest benefits of communicating about the matter.
A54. The determination not to communicate a key audit matter takes into account the facts and
circumstances related to the matter. Communication with management and those charged with
governance helps the auditor understand managements views about the significance of the
adverse consequences that may arise as a result of communicating about a matter. In
particular, communication with management and those charged with governance helps to
inform the auditors judgement in determining whether to communicate the matter by:

Assisting the auditor in understanding why the matter has not been publicly disclosed by
the entity (e.g., if law, regulation or certain financial reporting frameworks permit delayed
disclosure or non-disclosure of the matter) and managements views as to the adverse
consequences, if any, of disclosure. Management may draw attention to certain aspects
in law or regulation or other authoritative sources that may be relevant to the
consideration of adverse consequences (e.g., such aspects may include harm to the
entitys commercial negotiations or competitive position). However, managements views
about the adverse consequences alone do not alleviate the need for the auditor to
determine whether the adverse consequences would reasonably be expected to
outweigh the public interest benefits of communication in accordance with paragraph
14(b).

Highlighting whether there have been any communications with applicable regulatory,
enforcement or supervisory authorities in relation to the matter, in particular whether such
discussions would appear to support managements assertion as to why public disclosure
about the matter is not appropriate.

Enabling the auditor, where appropriate, to encourage management and those charged
with governance to make public disclosure of relevant information about the matter. In
particular, this may be possible if the concerns of management and those charged with
governance about communicating are limited to specific aspects relating to the matter,
such that certain information about the matter may be less sensitive and could be
communicated.

The auditor also may consider it necessary to obtain a written representation from management
as to why public disclosure about the matter is not appropriate, including managements view
about the significance of the adverse consequences that may arise as a result of such
communication.
A55. It may also be necessary for the auditor to consider the implications of communicating about a
matter determined to be a key audit matter in light of relevant ethical requirements. In addition,
the auditor may be required by law or regulation to communicate with applicable regulatory,
enforcement or supervisory authorities in relation to the matter, regardless of whether the
matter is communicated in the auditors report. Such communication may also be useful to
inform the auditors consideration of the adverse consequences that may arise from
communicating about the matter.
A56. The issues considered by the auditor regarding a decision to not communicate a matter are
complex and involve significant auditor judgement. Accordingly, the auditor may consider it
appropriate to obtain legal advice.

17

Form and Content of the Key Audit Matters Section in Other Circumstances (Ref: Para. 16)
A57. The requirement in paragraph 16 applies in three circumstances:
(i)

The auditor determines in accordance with paragraph 10 that there are no key audit
matters (see paragraph A59).

(ii)

The auditor determines in accordance with paragraph 14 that a key audit matter will not
be communicated in the auditors report and no other matters have been determined to
be key audit matters.

(iii)

The only matters determined to be key audit matters are those communicated in
accordance with paragraph 15.

A58. The following illustrates the presentation in the auditors report if the auditor has determined
there are no key audit matters to communicate:
Key Audit Matters
[Except for the matter described in the Basis for Qualified (Adverse) Opinion
section or Material Uncertainty Related to Going Concern section,] We have
determined that there are no [other] key audit matters to communicate in our
report.
A59. The determination of key audit matters involves making a judgement about the relative
importance of matters that required significant auditor attention. Therefore, it may be rare that
the auditor of a complete set of general purpose financial statements of a listed entity would not
determine at least one key audit matter from the matters communicated with those charged with
governance to be communicated in the auditors report. However, in certain limited
circumstances (e.g., for a listed entity that has very limited operations), the auditor may
determine that there are no key audit matters in accordance with paragraph 10 because there
are no matters that required significant auditor attention.

Communication with Those Charged with Governance (Ref: Para. 17)

A60. SSA 260 (Revised) requires the auditor to communicate with those charged with governance on
33
a timely basis. The appropriate timing for communications about key audit matters will vary
with the circumstances of the engagement. However, the auditor may communicate preliminary
views about key audit matters when discussing the planned scope and timing of the audit, and
may further discuss such matters when communicating about audit findings. Doing so may help
to alleviate the practical challenges of attempting to have a robust two-way dialogue about key
audit matters at the time the financial statements are being finalised for issuance.
A61. Communication with those charged with governance enables them to be made aware of the key
audit matters that the auditor intends to communicate in the auditors report, and provides them
with an opportunity to obtain further clarification where necessary. The auditor may consider it
useful to provide those charged with governance with a draft of the auditors report to facilitate
this discussion. Communication with those charged with governance recognises their important
role in overseeing the financial reporting process, and provides the opportunity for those
charged with governance to understand the basis for the auditors decisions in relation to key
audit matters and how these matters will be described in the auditors report. It also enables
those charged with governance to consider whether new or enhanced disclosures may be
useful in light of the fact that these matters will be communicated in the auditors report.
A62. The communication with those charged with governance required by paragraph 17(a) also
addresses the extremely rare circumstances in which a matter determined to be a key audit
matter is not communicated in the auditors report (see paragraphs 14 and A54).

33

SSA 260 (Revised), paragraph 21

18

A63. The requirement in paragraph 17(b) to communicate with those charged with governance when
the auditor has determined there are no key audit matters to communicate in the auditors
report may provide an opportunity for the auditor to have further discussion with others who are
familiar with the audit and the significant matters that may have arisen (including the
engagement quality control reviewer, where one has been appointed). These discussions may
cause the auditor to re-evaluate the auditors determination that there are no key audit matters.

Documentation (Ref: Para. 18)

A64. Paragraph 8 of SSA 230 requires the auditor to prepare audit documentation that is sufficient to
enable an experienced auditor, having no previous connection with the audit, to understand,
among other things, significant professional judgements. In the context of key audit matters,
these professional judgements include the determination, from the matters communicated with
those charged with governance, of the matters that required significant auditor attention, as well
as whether or not each of those matters is a key audit matter. The auditors judgements in this
regard are likely to be supported by the documentation of the auditors communications with
those charged with governance and the audit documentation relating to each individual matter
(see paragraph A39), as well as certain other audit documentation of the significant matters
arising during the audit (e.g., a completion memorandum). However, this SSA does not require
the auditor to document why other matters communicated with those charged with governance
were not matters that required significant auditor attention.

19