Every Auditor’s Report will change in order to:

- enhance the communicative value of the Auditor’s Report
- give prominence to the most important matters by re-ordering the content
- enhance reporting on going concern matters (if applicable), and provide enhanced descriptions of the respective responsibilities of directors/management and the auditor, in relation to going concern
- provide an affirmative statement on auditor’s independence and fulfilment of relevant ethical responsibilities
- provide more information to users on the auditor’s responsibilities, and the key features of an audit
- provide greater clarity around the auditor’s responsibilities in respect to – and the status of their consideration of – the other information that is included in an entity’s Annual Report.
- communicate matters of most significance to the audit (Key Audit Matters) of the current period and how the auditor addressed these
- provide details of other information the auditor has received at the date of the Auditor’s Report, and is expected to receive after the date of the Auditor’s Report.

There are further changes to the Auditor’s Report for listed entities in order to:

- communicate matters of most significance to the audit (Key Audit Matters) of the current period and how the auditor addressed these
- provide details of other information the auditor has received at the date of the Auditor's Report, and is expected to receive after the date of the Auditor's Report.

All Auditor's Reports prepared in accordance with the Australian Auditing Standards (ASAs) will change.  Some changes however, apply to listed entities only.  Below is a summary of the changes and whether they are for Auditor's Reports of all entities or listed entities only.  Question 3 provides details of the changes.

The changes are also required for Auditor’s Reports:
- of financial reports prepared in accordance with special purpose frameworks (ASA 800 Special Considerations – Audits of Financial Reports Prepared in Accordance with Special Purpose Frameworks)

- of single financial statements and specific elements, accounts or items of a financial statement (ASA 805 Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of Financial Statements)
- of summary financial statements (ASA 810 Engagement to Report on Summary Financial Statements)
- to regulators if the audits are conducted in accordance with the Australian Auditing Standards.

The changes do not relate to auditor’s review reports, or Auditor’s Reports on assurance engagements other than audits or reviews of historical financial information.

There is flexibility in the order of the remaining sections of the Auditor’s Report.  The Australian Auditing Standards provide guidance on the order with the overall principle being to give prominence to the matters of most importance.  The order of content in ASA 700 Forming an Opinion and Reporting on a Financial Report and the illustrative Auditor’s Reports are structured to achieve this, and it is advisable that this order is followed.  Refer to question 5 for further details.

Auditor’s opinion

The auditor’s opinion no longer includes an opinion on compliance with IFRS.  This requirement was considered redundant in view of changes to the Corporations Act 2001 which now requires that the director’s declaration includes a statement of compliance with IFRS (Corporations Act 2001 section 295 (4)).

Key Audit Matters (KAMs)

- Auditors of listed entities now include information in respect of those matters which in their judgement, were of most significance in the audit of the financial report in the current year.
- Auditors of non-listed entities can elect to include KAMs but are not required to do so.

Refer to questions 8-17 for further details.

Other information

More detail is provided on the director’s and auditor’s responsibilities in respect to other information, and on the status of the auditor’s consideration of other information, at the date of the Auditor’s Report.  Other information is financial and non-financial information included in the Annual Report (excluding the financial report and Auditor’s Report thereon).  This is included in the Auditor’s Report under a heading ‘Other Information’ or other appropriate heading.

For listed entities, the Auditor’s Report now details the other information received and information that has not yet been received at the date of the Auditor’s Report.
For non-listed entities, the Auditor’s Report details the other information received at the date of the Auditor’s Report.  There is no requirement to detail other information not received at the date of the Auditor’s Report.

For non-listed entities, if at the date of the Auditor’s Report no other information has been received, the Auditor’s Report does not include an ‘Other Information’ section.  As the other information includes the Director’s report, it is unlikely to be common that some other information has not been received at the date of the Auditor’s Report.

Refer to questions 21-25 for further details.

Management’s responsibilities

This is reported using the heading ‘Responsibilities of Management (ASA 700, paragraphs 33-35 The heading is modified to reflect who is responsible for the preparation of the financial report, and the oversight of the financial reporting process.  This may be management, those charged with governance and / or directors.  If the individuals responsible for the oversight of the financial reporting process are different to those responsible for the preparation of the financial report the heading includes both parties.) for the Financial Report’ (or for Corporations Act 2001 entities this would refer to ‘Directors’).

There are additional details on the responsibility of management/the directors for assessing whether the use of the going concern basis of accounting is appropriate, and whether any relevant disclosures are adequate.  These responsibilities are not new, but are now described in the Auditor’s Report.

Auditor’s responsibilities

The auditor’s responsibilities section has been expanded to provide more information about the key features of an audit.

This section is no longer ‘boiler plate’ across all audits and is amended depending on whether or not:

- the entity is a single entity or a group
- the entity is a listed entity or non-listed entity
- the auditor is communicating KAMs
- the entity uses a fair presentation or compliance framework in the financial report
- the audit is a group audit
- the auditor is issuing a qualified opinion.

New options are now available to present parts of the auditor’s responsibility section (ASA 700, paragraph 41):

- within the body of the Auditor’s Report (as is current practice)
- within an appendix to the Auditor’s Report with a reference in the Auditor’s Report to the appendix
- or by including a reference within the Auditor’s Report to the relevant page on the Australian Auditing and Assurance Standards Board (AUASB) website (www.auasb.gov.au/Home.aspx). 

ASA 700 stipulates that the Australian Auditing and Assurance Standards Board website is the only website to which reference can be made (ASA 700, paragraph Aus A57.1).

Refer to questions 19-20 for further details.

Going concern

There is an expanded description of the responsibilities of directors/management and the auditor in relation to going concern which is mandatory for all Auditor’s Reports.  These responsibilities are not new, but are now included for the first time in the Auditor’s Report.

If there are events or conditions that cast significant doubt on an entity’s ability to continue as a going concern, there are changes to the way this is reported:

- If the auditor concludes that a material uncertainty exists and disclosure within the financial report is adequate, the auditor expresses an unmodified opinion and the Auditor’s Report includes a separate section headed ‘Material Uncertainty Related to Going Concern’ instead of the previous ‘Emphasis of Matter’ paragraph.  In this scenario it is not described in the KAM section if a listed entity.
- If the auditor concludes a material uncertainty does not exist and there is adequate disclosure in the financial report, in the case of a listed entity this is likely to be reported as a KAM as it is likely that it was a matter of most significance to the audit.  This is often referred to as a ‘close call’ situation.  If the entity is not listed and the auditor is not communicating KAMs, the matter is not reported in the Auditor’s Report.

Refer to questions 26-27 for further details on going concern.

The changes are effective for financial reporting periods ending on or after 15 December 2016.  For example, Auditor’s Reports for entities with a 31 December 2016 year end are required to comply with the new requirements.

A number of auditors have elected to report under the new requirements early.

The auditor’s opinion and the basis for opinion paragraphs must be presented first (ASA 700, paragraphs 23 and 28).

There is flexibility in the order of the remaining sections of the Auditor’s Report, however the intention is that sections are presented in order of importance to the users of the financial report.  The order of content and the illustrative Auditor’s Reports contained in ASA 700, are structured to achieve this.  Other Australian Auditing Standards provide guidance on the order of the sections as follows:

- if an Emphasis of Matter paragraph on an alternative basis of accounting is required, it may be appropriate to include immediately following the ‘Basis of Opinion’ section to provide appropriate context to the auditor’s opinion (ASA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report, paragraph A16) 
- placing the KAM section close to the auditor’s opinion may give prominence to such information (ASA 701, paragraph A31).

The order of the presentation of individual KAMs is a matter of professional judgement.  It is however, advisable that the KAMs are ordered in a logical manner, for example in order of importance, or that KAMs which are inter-related are placed close together.

The following paragraph headings are stipulated by the Australian Auditing Standards:

- Opinion (ASA 700, paragraph 23)
- Basis for Opinion (ASA 700, paragraph 28)
- Material Uncertainty Related to Going Concern (ASA 570 Going Concern, paragraph 22)
- Key Audit Matters (ASA 701, paragraph 11)
- Responsibilities of Management (or those charged with governance) for the Financial Report (ASA 700, paragraph 33)
- Auditor’s Responsibilities for the Audit of the Financial Report (ASA 700, paragraph 37)

The Australian Auditing Standards do not prohibit the auditor reporting additional information in the Auditor’s Report.  ‘Emphasis of Matter’ paragraphs may be used to communicate matters that the auditor determines are important to users’ understanding of the financial report, and ‘Other Matter’ paragraphs may be used to communicate matters which the auditor determines are important to users understanding of the audit.  These may still be used and provide flexibility to the auditor to report any relevant matters, however, if ASA 701 applies, matters that are determined to be KAMs are reported as KAMs.

The International Standards on Auditing (United Kingdom) require the auditor to report on materiality in all Auditor’s Reports of listed entities, and group scoping where applicable.  These matters are not required by the International or the Australian Auditing Standards however, some auditors in Australia and other countries have voluntarily reported these.

Auditors of non-listed entities may voluntarily communicate KAMs, but must fully comply with ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report.

The Australian Auditing Standards requires the engagement partner’s name to be included in the Auditor’s Report where required by law and regulation (ASA 700, paragraph 46).  For all audits conducted in compliance with the Corporations Act 2001, the engagement partner signs the Auditor’s Report in their own name and the name of the firm (Corporations Act 2001 section 324AB (3) and ASA 700, paragraph A64.1) or the name of the audit company as applicable (Corporations Act 2001 section 324AD (1)).

For audits conducted in compliance with laws or regulations other than the Corporations Act 2001, the engagement partner can sign the Auditor’s Report in the name of the firm or the name of the audit company, unless the applicable law or regulation requires the engagement partner to sign in their own name.

The International Auditing Standards require the auditor’s name to be included in the Auditor’s Report of listed entities (ISA 700, paragraph 45) only.

A listed entity is defined in the Australian Auditing Standards (ASA 701, paragraphs 15, A6-A7) as an entity whose shares, stock or debt are quoted or listed on a recognised stock exchange, or are marketed under the regulation of a recognised stock exchange or equivalent body.

A recognised stock exchange includes those in Australia (including ASX/NSX/CHI-X) or in another jurisdiction.

If an entity is delisted during the year, the entity is not considered a listed entity for the purposes of the auditor reporting requirements.

KAMs are those matters that in the auditor’s professional judgement were of most significance to the audit of the financial report of the current period (ASA 701, paragraph 8).

The overall objective of communicating KAMs is to provide insight to the users of the financial report as to the most significant and/or challenging aspects of the audit for the current period.

KAMs are selected from matters communicated with those charged with governance (ASA 701, paragraph 9).

KAMs are likely to be the matters that:
- require significant auditor attention (ASA 701, paragraph A12)
- are of higher risk of material misstatement or have been identified as significant risks (ASA 701, paragraph 9 (a))
- are complex and/or require significant auditor judgement relating to areas that involve significant management judgement, including critical accounting estimates that have been identified as having high estimation uncertainty, and related disclosures (ASA 701, paragraph 9 (b))
- are the effect of significant events or transactions (ASA 701, paragraph 9 (c))
- may have involved specialists or experts (management’s or the auditor’s) (ASA 701, paragraph A14)
- posed challenges to obtain sufficient appropriate audit evidence (ASA 701, paragraph A13).

The final identification of KAMs occurs at the end of the audit. It is advisable to make an initial determination during the planning stages of the audit and to start discussions with those charged with governance early to avoid surprises. Refer to question 16.

It is not intended that all significant risks or matters communicated to those charged with governance will be KAMs. For example the Australian Auditing Standards stipulate that the risk of management over-ride of controls and the risk of fraud in the recognition of revenue are significant risks. It is however,  not intended that these are KAMs unless the auditor determines that they are of most significance to the audit.

A KAM may be a matter relevant to the audit that is not required to be disclosed in the financial report under accounting standards or the applicable regulatory or legal framework. For example, the implementation of a new IT system may have required significant audit attention and the auditor may identify this as a KAM. If a matter giving rise to a KAM has not been disclosed in the financial report but is publicly available information, the auditor may make reference to the publicly available information if it is considered appropriate and helpful to users, noting that this information has not been audited.

There is no specific guidance on how many KAMs should be communicated. ‘Early adopter’ reports issued to date in Australia, contained between 1 and 7 KAMs with an average of around 3-4 KAMs. For audits of more complex entities it may be appropriate to have more KAMs than for a non-complex entity.  Other matters that may impact the number of KAMs communicated are the nature of an entity’s business and environment. The intention however, is to communicate the areas of most significance in the audit and a long list of matters may detract from this.

Auditors of listed entities are required to communicate KAMs.

Auditors of non-listed entities may voluntarily elect to communicate KAMs.

KAMs are communicated in the Auditor’s Report for audits of general purpose financial reports of listed entities.

Parent entity financial information is usually presented within a consolidated financial report by way of a note. However, ASIC Class Order 10/654 allows parent entity information to be presented as a separate column in a 4 column financial report.

In a consolidated financial report, which includes parent entity information in a note only, KAMs do not need to be identified and communicated separately for the parent entity.  However, if there is a matter relative to the parent entity which is considered to be a KAM at the consolidated financial report level, the auditor communicates this in the Auditor’s Report on the consolidated financial report.

If an entity elects to prepare a 4 column consolidated financial report including general purpose parent entity financial statements, they must be prepared in accordance with the Australian Accounting Standards.  The auditor identifies and communicates KAMs addressing the audits for both the parent entity and the consolidated entity separately.

If a KAM is relevant to both the parent and the consolidated entity, the description clearly explains how the KAM relates to each entity, as there will likely be differences.  For example, a matter relating to goodwill impairment in the group maybe different from the asset impairment in the parent.

If in the auditor’s judgement there are no KAMs relevant to the parent entity (eg if the parent entity has limited operations) the Auditor’s Report reflects this as (ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report, paragraph A58 and A59):

It is expected to be extremely rare for an auditor of a listed entity not to have a matter which was of most significance.

KAMs are specific to each audit and it is expected there will be at least one matter that will require more focus and effort than other matters.

The auditor is required by Australian Auditing Standards to communicate certain matters to those charged with governance and should select from these the matters of most significance to the audit.

In the rare circumstance that the auditor has determined that there were no matters that require significant auditor attention and accordingly there are no KAMs to communicate, the Auditor’s Report details this as follows (ASA 701, paragraph 16):

Key Audit Matters

“We have determined that there are no key audit matters to communicate in our report.”

In the rare scenario where there are no KAMs identified, the audit documentation must detail the matters considered and the rationale for the conclusions made.

Key audit matters (KAMs) are communicated in the auditor’s report for audits of general purpose financial reports of listed entities.

The definition of listed entity (ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information) is an entity whose shares, stock or debt are quoted or listed on a recognised stock exchange, or are marketed under the regulation of a recognised stock exchange.

The ASX’s AQUA Market includes products such as Managed Fund Products, Exchange Traded Funds, and Structured Products and are governed by the ASX’s AQUA Rules.

These products are quoted on and marketed by the ASX and meet the definition of listed entities in the Auditing Standards.

Therefore auditor’s reports on general purpose financial reports of AQUA entities includes the communication of KAMs.

In addition auditors’ of these entities must comply with all Auditing Standard requirements relevant to listed entities, such as engagement quality control review procedures (ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information, paragraph 19).

* Refer to ASX Quoting Investment products on ASX and Schedule 10A Aqua Products and the Aqua Trading Market for details and rules for Aqua Products.

Matters giving rise to a modified opinion, or a ‘Material Uncertainty Related to Going Concern’, are by definition KAMs (ASA 701, paragraphs 15, A6-A7), however these are not described in the KAM section of the Auditor’s Report, but are reported in accordance with the requirements of the relevant standards ASA 705 Modifications to the Opinion in the Independent Auditor’s Report and ASA 570 Going Concern.  The Auditor’s Report details this as follows:

Key Audit Matters

“In addition to the matter described in the Basis for Adverse/Qualified opinion section or the ‘Material Uncertainty Related to Going Concern’ section, we have determined the matters described below to be the key audit matters to be communicated in our report.”

Note that the description of, and why the matter was considered to be a KAM, and how it was addressed in the audit, is not required to be included in the ‘Basis for Adverse/ Qualified’ opinion section (ASA 701, paragraph 15).

A KAM section is not included in the Auditor’s Report when a disclaimer of opinion is issued due to concerns that communicating KAMs would suggest that the auditor was able to conclude on that topic.

If a disclaimer of opinion is issued there is no Other Information section (ASA 705, paragraph 29) in the Auditor’s Report.

While it is expected to be very rare, there may be scenarios where it is not appropriate to communicate a matter that is identified as a KAM in the Auditor’s Report.  These are (ASA 701, paragraph 14):

- if there is a law or regulation precluding the public communication of a matter
- if there are adverse consequences that would reasonably be expected to outweigh the public interest benefits of communicating a matter.

It will be extremely rare for a matter determined to be a KAM not to be communicated in the Auditor’s Report, as it is presumed to be a public interest benefit in providing greater transparency about the audit for intended users. Accordingly, the judgement not to communicate a key audit matter is appropriate only where the adverse consequences are viewed as so significant that they would reasonably be expected to outweigh the public interest benefits of reporting.  Importantly, this does not apply if the entity has publicly disclosed information about the matter (ASA 701, 14 (b)).

The issues to consider in deciding whether or not to communicate a KAM are complex and can involve significant judgement.  In these scenarios the auditor considers:

- obtaining legal advice
- requesting a representation from those charged with governance detailing the reasons why it is not appropriate to communicate the KAM
- whether the matter results in additional reporting obligations (eg to a regulator).

In the rare scenario where matters identified as KAMs are not communicated, the audit documentation details the matters considered and the rationale for the conclusions reached.

Communicating KAMs is an opportunity for the auditor to demonstrate the value of the audit, exercise of professional scepticism and sound professional judgement. This should be paramount in mind when writing KAMs.

The following is required to be described (ASA 701, paragraph 13):

- why the matter is considered to be one of most significance in the audit and therefore determined to be a KAM
- what the auditor did to address the matter and form their conclusions
- reference to the disclosures, if any, in the financial report.

The description of a KAM is in the context of the responsibility of the auditor to provide useful information to users, and avoids inappropriately providing original information about the entity (ASA 701, paragraph A34-A36).

Original information is any information about the entity that is not publicly available. The description should avoid including information about the entity that has not been disclosed in the financial report, or otherwise made public by the entity, unless this is considered appropriate in the circumstances and is not precluded by law or regulation. In this scenario the auditor encourages management or those charged with governance to disclose additional information rather than the auditor providing original information in the Auditor’s Report.

If there is insufficient disclosure in the financial report, the KAM cannot be used to communicate matters that are required to be disclosed.  In this scenario the auditor requests those charged with governance to include appropriate disclosure, and if not rectified, considers the impact on the auditor’s opinion.

There is no requirement to detail the outcome of audit procedures undertaken however some auditors may elect to do so.  If the outcome of procedures is included within the KAM, it is important that the wording does not imply discrete opinions on separate elements of the financial report.

If an external or internal expert (the auditor’s or management’s) has been used the auditor may detail the type of expert and the procedures the expert and the auditor performed.

The Auditor’s Report may refer to the use of component auditors where it is considered appropriate.  However the group auditor is ultimately responsible for the conclusions reached and the audit opinion.

KAM descriptions:

- are succinct, relate to the audit for the current year, and avoid boilerplate language and jargon
- are referenced to relevant disclosures in the financial report rather than repeating that information
- are specific to the circumstances and are not copied from other KAMs/audit reports
- communicate the factors that led to the matter being identified as a KAM.  For example, changes in the entity’s business, the nature of the matter and any inherent uncertainty that exists, new or complex accounting policies etc
- are specific about the exact matter eg recoverability of an asset
- describe the key audit procedures actually performed to address the matter.  It is not necessary or advisable to list all procedures performed.  Example wording is ‘our procedures included’
- are very precise in their description of what the auditor actually did, and are not embellished.  For example if certain controls were tested this is described as ‘key controls were tested’ not ‘controls were tested’, and for substantive testing ‘we tested on a sample basis’ and not ‘we tested’
- avoid terms such as ‘verified’, ‘ensured’ and ‘reviewed’, as they are unlikely to accurately reflect what was done
- do not imply a matter has not been appropriately resolved
- demonstrate how the auditor was sceptical and how key assumptions used by management were challenged.

The order of the presentation of individual KAMs is a matter of professional judgement.  It is however, advisable that the KAMs are ordered in a logical manner, for example in order of importance, or that inter-related KAMs are placed close together.

As well as complying with ASA 230 Audit Documentation, the following is required (ASA 701, paragraph 18) to be documented:

- the identification of which matters required significant auditor attention and the determination as to whether or not they are KAMs
- if there are no KAMs, the rationale why
- the rationale for not including a matter in the Auditor’s Report if it was determined to be a KAM.

From the matters communicated to those charged with governance, the auditor determines those that require significant auditor attention. Professional judgement is used when determining the matters that require significant auditor attention and are likely to be those that require auditor judgement and attention from the senior members of the audit team. 

The audit documentation needs to include why these matters are, or are not KAMs. There is no requirement to document why all matters communicated to those charged with governance were not matters that required significant auditor attention and are not KAMs. 

It is advisable that the auditor discusses their preliminary views about matters that may be areas of significant auditor attention – and therefore may be KAMs – as early as possible with those charged with governance.  The assessment of KAMs may change during the audit so the auditor updates those charged with governance throughout the audit.  At the end of the audit the final determination and communication of KAMs occurs.

When discussing likely KAMs with those charged with governance, it is advisable to highlight/illustrate how the KAM may be described in the Auditor’s Report.

Early communication about KAMs also assists those charged with governance in considering whether there is adequate disclosure on the matter in the Financial Report.

‘Emphasis of Matter and/or Other Matter’ paragraphs are still used and the definitions have not changed.

For listed entities, the frequency of ‘Emphasis of Matter and/or Other Matter’ paragraphs is expected to decline as many will be reported as KAMs or a ‘Material Uncertainty Related to Going Concern’.

If KAMs are reported and a matter meets the definition of a KAM and an ‘Emphasis of Matter and/or Other Matter’, it is reported as a KAM only.

For all entities, if a material uncertainty related to going concern exists, and disclosure is adequate, this is now reported under the heading ‘Material Uncertainty Related to Going Concern’ instead of the previous Emphasis of Matter paragraph.

Examples of where an ‘Emphasis of Matter’ paragraph may be used:

- If the use of the going concern basis of accounting is not appropriate and the financial report has been prepared using an alternative basis of accounting, and there is adequate disclosure in the financial report.
- If a financial report has been prepared under a Special Purpose Framework.

Examples of where an ‘Other Matter’ paragraph may be used:

- If the previous year’s financial report was not audited.
- If reporting on materiality and/or group scoping.

The placement of ‘Emphasis of Matter and/or Other Matter’ paragraphs in the Auditor’s Report depends on the nature of the information to be communicated, and the relative significance of the matter.

Key audit matters (KAMs) are matters that, in the auditor’s judgement, were of most significance in the audit of the financial report of the current period.  ASA 560 Subsequent Events requires the auditor to obtain sufficient appropriate audit evidence about whether events occurring between the date of the financial report and the date of auditor’s report are appropriately reflected in that financial report in accordance with the applicable financial reporting framework.

AASB 110 Events Occurring After Balance Sheet Date requires the following accounting treatment in the financial report:

- Events that provide evidence on conditions that existed at reporting date are adjusted.

- Events that provide evidence on conditions that arose after the date of the financial report, are not adjusted, however if material, are disclosed.

Subsequent events which are adjusted or disclosed in the financial report are matters relevant to the financial report of the current period.  Therefore, where ASA 701 applies, they may be identified as a KAM if, in the auditor’s judgement, they are a matter of most significance to the audit of that financial report.

ASA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report (ASA 706) paragraph A5 includes a significant subsequent event as an example of where an emphasis of matter (EOM) paragraph may be necessary.  However in, accordance with ASA 706.8(b), an EOM is only communicated if the matter is not determined to be a KAM.  In this scenario the auditor may choose to highlight or draw further attention to the matter’s relative importance by presenting it first in the KAM section, or include additional information in the KAM to highlight that it is fundamental to users’ understanding of the financial report. (ASA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report, paragraph  8, A2)

If ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report does not apply, or if the matter is not a matter of most significance to the audit (ie. not a KAM), the auditor uses judgement and considers whether an EOM is appropriate in accordance with ASA 706. (ASA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report, paragraph  8, A1 – A3)

If key audit matters (KAMs) are communicated in the auditor’s report, and a matter meets the definition of a KAM, and in the auditor’s judgement is also of such importance that it is fundamental to users’ understanding of the financial report (ie. where the auditor contemplates communicating an emphasis of matter paragraph), the matter is communicated as a KAM in the auditor’s report (ie. not as an emphasis of matter).  In this scenario the auditor may choose to highlight or draw further attention to the matter’s relative importance by presenting it first, or more prominently, in the KAM section, or include additional information in the description of the KAM to highlight the importance of the matter to users’ understanding of the financial report. (ASA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report, paragraph  8, A2)

A: It depends. KAMs are those matters, that in the auditor’s professional judgement, were of most significance to the audit of the Financial Report for the current period. KAMs are determined based on the audit performed in the current year. They may, or may not, be the same item as reported in the prior year audit.

In many cases the type and number of KAMs reported for an entity will not change. If there has been no significant changes in the entity’s operations, the industry sector or business environment as related to that entity, it is likely the matters that require significant auditor attention have not changed in the year. The descriptions may also show commonalities.

Alternately, if there have been significant changes in the entity’s operations, the industry sector or business environment as they relate to that entity, the matters which required significant auditor attention may be different to those reported in the prior year, or the descriptions in the KAM items may vary based on the changes driving the auditor focus.

Also, in some circumstances it may be appropriate for the KAMs reported to either completely change or partly change from the prior year. Some examples of KAMs which may change are those relating to legal provisions, new IT systems implemented during the year, business acquisitions and new accounting standards relevant to that entity.

Importantly, if the KAM item is the same as the prior year, the auditor’s description of why the matter was of most importance, and how these were addressed in the audit may still be different. These descriptions are drawn from the conditions impacting the audit focus, such as external conditions, business model, structural and process changes, leading to risk of misstatement etc. These descriptions therefore are dependent on the actual audit approach conducted in that years audit.

The auditor’s responsibilities section in the auditor’s report is different depending on the type of entity being audited.

All auditor’s reports include the content required by ASA 700 paragraphs 37, 38 and 39 (a) and (b)(i) to (iv), and 40 (a).

ASA 700 paragraph 39 (b) (v) is applicable for auditor’s reports of financial reports prepared in accordance with a fair presentation framework.

ASA 700 paragraph 39 (c) is applicable for audits where ASA 600 applies.

ASA 700 paragraphs 40 (b) and (c) are applicable for audits of listed entities.

- Auditors may elect to present parts of the auditor’s responsibility section (ASA 700, paragraph 41) by including a specific reference within the Auditor’s Report to a specific webpage on the Australian Auditing and Assurance Standards Board (AUASB) website (www.auasb.gov.au/Home.aspx)*.

- As a result, when referring to the responsibilities statements the auditor needs to include the following URL, where # is the number of the statement below:

ASA 720 The Auditor’s Responsibilities Relating to Other Information has been reissued to provide increased clarity in the Auditor’s Report on the auditor’s responsibility in relation to, and the status of the auditor’s consideration of, the other information reported in the Annual Report.

Other information is defined as financial or non-financial information included in an entity’s Annual Report (ASA 720, paragraph 12 (c)).  Refer to question 21 for further detail.

The auditor does not express any form of assurance conclusion on the other information.

The auditor is required to read and consider whether there is a material inconsistency between the other information and the financial report, and/or the auditor’s knowledge obtained during the audit (ASA 720, paragraph 14).  This responsibility applies regardless of whether the other information is obtained before or after the date of the Auditor’s Report.

As a basis for considering whether there is a material inconsistency between the other information and the financial report, the auditor is required to compare selected amounts or items in the other information to such amounts or items in the financial report (ASA 720, paragraph 14). This is a new requirement.

The nature and extent of the amounts or items to compare is a matter of professional judgement. It is however, intended that the auditor selects amounts or items which are significant in size or importance to the financial report.

There is detailed reporting on the status of the auditor’s consideration of the other information as follows:

- Auditor’s reports of listed entities now provide details of the other information they have received, and have not received, as at the date of the Auditor’s Report (ASA 720, paragraph 22 (b)).
- Auditor’s reports of non-listed entities include details of the other information obtained before the date of the Auditor’s Report (ASA 720, paragraph 22 (b)), however do not include the details of the other information not yet received.  If no other information has been received before the date of the Auditor’s Report, the Auditor’s Report does not include an Other Information section.  However as the Director’s Report is other information and is ordinarily received before the Auditor’s Report date, this is unlikely to be the case for audits conducted under the Corporations Act 2001.

The auditor reads and considers other information regardless of whether it is received before or after the date of the Auditor’s Report.

It is not uncommon for an entity to prepare its full Annual Report after the audit opinion on the financial report has been signed by the auditor. In this scenario the Auditor’s Report for a listed entity details the other information which is expected to be received after the date of the Auditor’s Report.

Auditors should discuss their responsibility for other information with those charged with governance as early as possible, to ensure they are aware of the additional detail that will be provided in the Auditor’s Report if the other information is not available to the auditor before the date the audit report is signed.

When some of the other information will not be available until after the date of the Auditor’s Report, the auditor is required to request a representation from management/those charged with governance that the final version of the documents will be provided to the auditor when available and prior to its issuance by the entity (ASA 720, paragraph 13 (c)).

Audit documentation includes details of the procedures performed and the final version of the other information (ASA 720, paragraph 25).

Other information is defined as financial or non-financial information included in an entity’s Annual Report (ASA 720, paragraph 12 (c)).The Annual Report contains or accompanies the financial report and the Auditor’s Report, and includes information and reports required by the Corporations Act 2001 and the ASX listing rules, such as the Director’s Report including the Operating and Financial Review and Remuneration Report and Corporate Governance Report, and may also include additional non-compulsory reporting for example sustainability reports, overview of strategy etc.

The Remuneration Report is included in the Director’s Report which forms part of the other information.  However auditors are still required to express an opinion that the Remuneration Report complies with section 300A of the Corporations Act 2001.

Other information does not include (ASA 720, paragraph A5):

- Reports which are issued as stand-alone documents and are not part of the combination of documents which comprise the Annual Report.  For example, separate industry or regulatory reports, corporate social responsibility reports, and sustainability reports if not issued within the Annual Report.
- Preliminary announcements of financial information.
- Security offering documents including prospectuses.
- Unaudited supplementary information.

The annual report contains or accompanies the financial report and the auditor’s report thereon.  This may be a single document or a combination of documents that are prepared to provide owners with information on the entity’s operations, financial results and financial position.

The annual report includes material required by statutory and regulatory requirements from the Corporations Act 2001 and the ASX listing rules, and may include additional voluntary reporting.

Determining the documents that comprise the annual report is often clear as they are required by the statutory and regulatory requirements, or are within the one document called “Annual Report”.

If this is not the case, the auditor using professional judgement determines what comprises the annual report considering the timing, purpose of the documents and for whom they are intended.

The auditor’s report of financial reports of listed entities identifies the other information received, and not received, as at the date of the auditor’s report (ASA 720, paragraph 21).  

The auditor’s report of financial reports of non-listed entities identifies the other information received as at the date of the auditor’s report, however is not required to identify the other information not received.   If no other information has been received as at the date of the auditor’s report, an other information section is not included in the auditor’s report.  However, this is unlikely to be the case for audits conducted under the Corporations Act 2001 as the Directors’ Report is other information and is ordinarily received before the auditor’s report date.

When detailing the other information received, and not received for listed entities, the auditor may refer to the specific name of the documents to avoid any confusion as to the other information which the auditor has read and considered as at the date of the auditor’s report.

If a material inconsistency is identified between the other information and the financial report and/or the other information and the auditor’s understanding of the entity, the auditor performs audit procedures to conclude whether:

- a material misstatement exists in the other information
- a material misstatement exists in the financial report
- the auditor’s understanding of the entity needs to be updated.

If a material misstatement is identified in the other information received before the date of the Auditor’s Report, the auditor requests that the other information is amended.  If the entity does not make appropriate amendments, the auditor includes in the Auditor’s Report details of the uncorrected material misstatement of the other information.

If a material misstatement is identified in the other information received after the date of the Auditor’s Report and the entity does not make appropriate amendments, the auditor considers their legal rights and obligations and seeks to have the uncorrected material misstatement appropriately brought to the attention of users (ASA 720, paragraphs 19 and A50 and Aus A50.1).  The auditor uses professional judgement to determine how to bring this to the attention of users (ASA 720, paragraph A50).  For audits performed under the Corporations Act 2001 the auditor considers their reporting obligations under section 311 (ASA 720, paragraph Aus A50.1).

If as a result of reading the other information received after the date of the Auditor’s Report, a material misstatement is identified in the financial report, the auditor considers their responsibilities under ASA 560 Subsequent Events (ASA 560, Subsequent Events, paragraphs 14-17), including requesting those charged with governance to amend the financial report.  If the financial report is not amended the auditor uses professional judgement to determine how to bring this to the attention of users and considers seeking legal advice.

If a material inconsistency is identified in the auditor’s understanding of the entity before the date of the Auditor’s Report, the auditor considers the impact on the audit including whether the identified risk of material misstatements are still appropriate, and performs additional procedures as appropriate for the circumstances.

If a material inconsistency is identified in the auditor’s understanding of the entity after the date of the Auditor’s Report, the auditor considers their responsibilities under ASA 560.

ASA 720 The Auditor’s Responsibility Relating to Other Information (ASA 720) defines other information as financial and non-financial information (other than the financial report and the auditor’s report there on) included in an entity’s annual report.  An Annual Report is information prepared to provide owners (or similar stakeholders) with information on the entity’s operations and the entity’s financial results and financial position as set out in the financial report, and contains or accompanies the financial report.  The Director’s Report forms part of other information.

ASA 720 The Auditor’s Responsibility Relating to Other Information defines other information as financial or non-financial information (other than the financial report or the auditor’s report thereon) included in an entity’s annual report.  An Annual Report is information prepared to provide owners (or similar stakeholders) with information on the entity’s operations and the entity’s financial results and financial position as set out in the financial report, and contains or accompanies the financial report.

The Corporations Act 2001 requires listed companies to include a Remuneration Report in the Director’s Report. (Corporations Act 2001, section 300A) The Director’s Report and the Remuneration Report are included in an entity’s Annual Report, and therefore are other information as defined by ASA 720.

If the Director’s Report includes a Remuneration Report, section 308(3C) of the Corporations Law 2001 requires the auditor to provide an opinion on the Remuneration Report.

ASA 720 requires the auditor to read and consider whether there is a material inconsistency in the other information. The other information section of the auditor’s report includes a statement that the auditor’s opinion does not cover the other information, and accordingly, that the auditor does not express an audit opinion or any form of assurance conclusion thereon.  If the auditor is providing an audit opinion on the Remuneration Report, the other information section may include a comment that this has been audited and make reference to the separate opinion included, however there is no requirement to do so.

ASA 720 The Auditor’s Responsibility Relating to Other Information requires audit reports on financial reports of non-listed entities to include an other information section if the auditor has obtained some or all of the other information as at the audit report date.  If no other information has been received as at the audit report date, an other information section is not included in the auditor’s report.   However, this is unlikely to be the case for audits conducted under the Corporations Act 2001, as the Director’s Report is other information and is ordinarily received before the auditor’s report date, and in these circumstances audit reports on financial reports of non-listed entities should include an other information section.  Note that this is also applicable for auditor’s reports on special purpose financial reports.

ASA 570 Going Concern has been reissued and in combination with ASA 700 and ASA 701 there are changes to how going concern matters are reported by the auditor.  Appendix 1 to ASA 570 includes a helpful flowchart to assist in determining the appropriate reporting when going concern issues exist.

There is a new requirement to challenge the adequacy of disclosures for 'close calls’ where events are identified that may cast significant doubt on an entity’s ability to continue as a going concern.  When assessing the adequacy of disclosures, the auditor considers whether there is appropriate detail on the principal events or conditions that have caused the going concern issue.

If events or conditions exist that cast significant doubt on the entity’s ability to continue as a going concern, the type of audit opinion issued is dependent on the conclusions the auditor makes as follows:  

- If use of the going concern basis of accounting is not appropriate and the financial report has been prepared using an appropriate alternative basis of accounting, and there is adequate disclosure in the financial report, this may be reported as an Emphasis of Matter paragraph.
- If use of the going concern basis of accounting is not appropriate, and the financial report has been prepared using the going concern basis of accounting, an Adverse opinion is issued.
- If the auditor concludes a material uncertainty related to going concern exists, and there has been appropriate disclosure in the financial report, it is reported under a new separate section in the audit report under the heading ‘Material Uncertainty Related to Going Concern’.  For listed entities this is also a KAM, however the KAM section does not include details of the matter and is referenced to the ‘Material Uncertainty Related to Going Concern’ section.
- If the auditor concludes a material uncertainty related to going concern exists, and the disclosure in the financial report is not appropriate, a Qualified or Adverse opinion is issued.

If there is a material uncertainty related to going concern, and adequate disclosure in the financial report, the auditor’s report includes a section which is now required to be titled “Material Uncertainty Related to Going Concern” (MURGC) (ASA 570 Going Concern, paragraph 22) (ie no longer as an Emphasis of Matter).

ASA 570 Going Concern, paragraph 22 establishes the minimum information to be presented in the auditor’s report under the MURGC heading which is to:
- Draw attention to the note in the financial report which includes the required disclosures
- State that these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern, and that the auditor’s opinion is not modified in respect of the matter (ASA 570 Going Concern, paragraph 22). 

Sample wording is contained in Illustration 1 of the Appendix 2 of ASA 570.

For a listed entity a MURGC is by its nature a KAM (ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report, paragraph 15), however the MURGC is to be reported in a separate section of the auditor’s report.  The introductory sentences to the KAM section of the auditor’s report includes a cross reference to the MURGC section, where the matter is described.

The description of the matter required to be included in the MURGC section (ASA 570 Going Concern, paragraph 22) is less than what is required in the KAM section (ASA 701, Communicating Key Audit Matters in the Independent Auditor’s Report, paragraph 13) of the auditor’s report.   However the auditor may provide additional information in the MURGC section to supplement the required ASA 570.22 statements, for example to explain:
- that the existence of a material uncertainty is fundamental to user’s understanding of the financial report, or
- how the matter was addressed in the audit (ASA 570 Going Concern, paragraph 22).

If there is an event or condition which may cast significant doubt on the entity’s ability to continue as a going concern, but the auditor concludes the uncertainty is not material and that management’s use of the going concern assumption is appropriate, no additional disclosure or additional paragraph in the audit report is required.  However the auditor considers whether this is a KAM in accordance with ASA 701 Communicating Key Audit Matters, paragraphs 9 and 10.

ASA 800 Special Considerations – Audits of Financial Reports Prepared in Accordance with Special Purpose Frameworks has been revised and reissued to reflect the changes to auditor reporting.

Auditors’ reports on special purpose financial reports are not within the scope of ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report, and therefore there is no requirement for the auditor to communicate KAMs unless required by law or regulation.  However, the auditor may elect to communicate KAMs.

ASA 720 The Auditor’s Responsibilities Relating to Other Information deals with the auditor’s responsibilities relating to other information.  Reports containing or accompanying a special purpose financial report with the purpose of providing owners with information on matters presented in the special purpose financial report, are considered to be annual reports, and the requirements of ASA 720 apply (ASA 800 Special Considerations – Audits of Financial Reports Prepared in Accordance with Special Purpose Frameworks, paragraph A17).

ASA 810 Engagements to Report on Summary Financial Statements has been revised and reissued to reflect the changes to auditor reporting.

Where the auditor’s report on the financial report includes KAMs, the auditor’s report on the summary financial statements or concise financial report states that the auditor’s report on the financial report includes communication of KAMs.

The intention is to draw to the users’ attention that there are KAMs in the auditor’s report on the financial report, however the auditor is not required to describe in detail or repeat the KAMs in the auditor’s report on the summary financial statements or concise financial reports.

The AUASB has recently released a revised Guidance Statement GS 001 which addresses the auditor’s considerations in relation to reporting of KAMs for auditors conducting audit engagements of a concise financial report prepared under the Corporations Act 2001.

For audits of summary financial statements and concise financial reports, the auditor complies with the requirements of ASA 810 Engagements to Report on Summary Financial Statements.

ASA 810 requires the auditor to read and consider the information included in documents containing summary financial statements, and consider whether there is a material inconsistency between that information and the summary financial statements (ASA 810, paragraph 14).

If the auditor identifies a material inconsistency, the auditor discusses this with management and determines whether the summary financial statements or the information included in the document containing the summary financial statements needs to be revised.  If management does not make appropriate amendments to address the material inconsistency, the auditor considers the impact on the auditor’s report  (ASA 810, paragraph 15).

If the other information included with summary financial statements, is the same as the other information included in the annual report, the work already performed by the auditor in accordance with ASA 720 may be adequate.

If the other information included with summary financial statements is not included in the annual report, the auditor may still find the requirements of ASA 720 helpful, and follows the requirements of ASA 810 detailed above.

The AUASB has recently released a revised Guidance Statement GS 001 which addresses the auditor’s considerations in relation to reporting of other information for auditors conducting audit engagements of a concise financial report prepared under the Corporations Act 2001.

Refer to AUASB Bulletin: Auditor review reports – the impact of the new auditor reporting requirements.