Key points to understand significant audit matters
A few days ago, several press headlines referring to audit reports caught my attention. Some said:
“The auditor sees a significant risk in…”
“The auditor warns about doubt regarding the accounting method.”
These interpretations can be confusing. Reading the first, it may seem that there is a serious issue within the entity, while the second suggests possible doubt on the auditor’s part regarding the accounting records. However, these perceptions are often the result of a semantic misinterpretation, as audit reports have a specific regulatory purpose.
Structure of audit reports
Audit reports must follow strict standards, with mandatory sections and specific headings. Although the auditor has some flexibility when drafting certain paragraphs—such as qualifications or “key audit matters”—the minimum structure of a report includes:
- Opinion
- Basis for opinion
- Key audit matters (in public-interest entities) or Most Relevant Audit Matters (AMRA) in other entities
- Other information
- Responsibilities of management
- Auditor’s responsibilities
International Standard on Auditing 701 (ISA (Spain) 701 / NIA-ES 701)
International Standard on Auditing 701, applicable in Spain, establishes that the purpose of communicating key audit matters is to provide additional information to help users of the financial statements understand the most significant aspects of the audit process. In addition, these matters reflect areas where management has applied significant judgment and where the auditor has focused their work.
What are Key Audit Matters?
Key audit matters are not warnings or indications of errors in the accounts. They are matters that, during the audit, were of greatest significance due to significant risks of material misstatement, including potential fraud. In this section, the auditor explains:
- The risks considered most significant
- How those risks were addressed
- The audit procedures performed
- The conclusions reached
Under Article 5c of the Audit Act, these matters are intended to reflect significant risks and the auditor’s response, providing transparency without affecting the final audit opinion on the financial statements.
Related content
