IAASA has today published its ISA 701 Thematic Review. This thematic review explores how a sample of auditors of public-interest entities complied with the requirements of International Standard on Auditing (Ireland) 701, Communicating Key Audit Matters in the Independent Auditor’s Report (ISA 701).
Key observations in the thematic review include some of the characteristics of the more informative auditor’s reports, which are:
detailed, specific descriptions of the nature of the risks, how the matter was addressed and key observations;
the inclusion of key observations in the body of the KAM;
specific reporting on how materiality was applied, including thresholds such as performance materiality and the threshold for reporting unadjusted differences. Also, details of qualitative considerations relating to the evaluation of materiality; and
specific, granular details of how the scope was influenced by each KAM and how it was influenced by materiality. This may include coverage obtained over certain accounts and, in the cases of group audits, the nature of involvement in the work of the component auditor.
The Authority recommends that audit firms move towards increased levels of specificity in the auditor’s report, and that they consider the characteristics of the most informative auditor’s reports described above.