In line with its mandate to ensure transparency in financial reporting in the country, the Financial Reporting Council of Nigeria has called on the nation’s auditors to always communicate Key Audit Matters to intended users as stipulated by the International Standards on Auditing 701.
The ISA 701 deals with the auditor’s responsibility to communicate Key Audit matters in the auditor’s judgment as to what to communicate in the auditor’s report and the form and content of such communication.
Addressing stakeholders of the financial sector at a brainstorming session organized by the Council in Lagos, the Executive Secretary of the FRC, Mr. Jim Obazee, said that the need for the implementation of ISA 701 was borne out of the realization that reporting results alone was no longer sufficient in auditing.
Obazee said that there was also the need to analyse and evaluate the quality of processes and controls used to report the results.
“Entities are required to provide financial stakeholders with fair, transparent and reliable financial results and secure the attestation of the information. Internalisation is beginning to change all of these in a new direction. In addition to financial results, entities are now required to analyse and evaluate the quality of the processes and controls used to report the results,” he said.
According to Obazee, KAM are those matters, in the auditor’s professional judgment, that were of utmost significance in the audit of the financial statements of the current period.
He added that KAM were 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.
“ISA 701 includes judgment- based decision-making framework, which is further broken down into matters communicated with those charged with governance, matters that required significance in the audit of the current period,” he said.
The FRC Chief observed that the overall objective of communicating KAM is to enhance the communicative value of the auditor’s report by providing greater transparency about the audit that was performed.
Obazee, however, noted that there are circumstances where a matter determined to be KAM is not expected to be communicated in the auditor’s report and such instances include; where law or regulation precludes public disclosure about the matter, or where the auditor determines that the adverse consequences of the disclosure would reasonably be expected to outweigh the public interest benefit of the communication.
