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Key Audit Matters (KAM)

Decent Essays
To enhance the perceived value of financial report audits, the IAASB has set out the public issuance of Key Audit Matters (KAM) or audit commentaries in the Proposed New Audit Report. Although some investors have expressed receptiveness to this proposal, reactions from auditors and their clients have been mixed. I personally believe that there are merits to the disclosure of KAM given the auditor’s strong understanding of the entity’s business, however it is debatable whether the benefits outweigh the costs of auditors potentially overstepping independence requirements and clients risking to face increased audit fees.

By highlighting matters considered most important to users and drawing attention to management’s disclosures, auditor commentaries can provide a more enhanced communicative value than the current “pass/fail” opinion system. Disclosures on KAM could send a signal to users that these matters should be important to their decision-making because these were the subjects of significant audit attention (Ernst and Young, 2012). Furthermore, it helps readers understand how the audit was conducted and provides additional contextual information on how the auditor reached their conclusions (ICAO, 2012). By virtue of users more closely reviewing these disclosures, auditors may also practice greater professional scepticism, leading to improved audit quality and transparency.

In contrast, inclusion of KAM may go beyond the audit scope. Commenting on entity specific
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