COMFORT EKELEME
The Financial Reporting Council of Nigeria (FRC) has harped on the need for auditors to communicate Key Audit Matters (KAM) in their report as part of auditor’s responsibility in accordance with the International Standards on Auditing, ISA 701 in order to ensure transparency and reliability in financial results.Speaking at a brainstorming session with stakeholders in Lagos recently, Chief Executive Officer of FRC, Mr. Jim Obazee, said the need for the implementation of ISA 701 was predicated on the need to evaluate the quality of the processes used to report results.
“Entities are required to provide their financial reporting stakeholders with fair, transparent and reliable financial results and secure the attestation of the information.
“Internationalization is beginning to change all of these in a new direction. The reporting of results alone is no longer sufficient. In addition to financial results, entities are now required to analyze and evaluate the quality of the processes and controls used to report the results,” he stated.
Obazee said that ISA 701 defines KAM as “those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period.
He also said that KAM are selected from matters communicated with those charged with governance about certain matters relating to the entity, the audited financial statements, or the audit that was performed.
The overall objective of communication KAM is to provide additional information to intended users of the financial statements to assist them in understanding those matters that; in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period, Obazee said.
“ISA 701 includes judgment-based decision-making framework, which is further broken down into matters communicated with those charged with governance; matters that required significant auditor attention in performing the audit and matters of most significance in the audit of the financial statements of the current period”, he added.
Obazee noted however that there are exceptional instances where KAM is not required to be communicated; such circumstances include where law or regulation precludes public disclosure about the matter or in extremely rare circumstances, where the auditor determines that the adverse consequences of the disclosure would reasonably be expected to outweigh public interest benefit of the communication.
The ISA 701 issued by the International Auditing and Assurance Standards Board(IAASB) in January 2015 is expected to come into effect on or after December 15, 2016.