Key Audit Matters (Kam) Essay

705 words - 3 pages

To enhance the perceived value of financial report audits, the IAASB has set out the public issuance of Key Audit Matters (KAM) or audit commentaries in the Proposed New Audit Report. Although some investors have expressed receptiveness to this proposal, reactions from auditors and their clients have been mixed. I personally believe that there are merits to the disclosure of KAM given the auditor’s strong understanding of the entity’s business, however it is debatable whether the benefits outweigh the costs of auditors potentially overstepping independence requirements and clients risking to face increased audit fees.

By highlighting matters considered most important to users and ...view middle of the document...

In addition, mandating specific items to include in the commentary can result in ‘boilerplate’ language (Stringer, 2012). For instance, auditors might simply use traditional examples provided by the standards for consistency and conservatism. Further, adding a commentary can possibly dilute the impact of the highlighted issues specified in current audit items such as emphasis of matter, modifications and other paragraphs.

The issue of auditor independence also poses a concern since additional audit commentary could blur the distinction between the roles of management and the auditor in disclosing analyses on entity specific matters that management traditionally provides. In relation, the proposed change could damage the transparency between management and auditors. Management may be discouraged to enlist auditors in addressing the company’s financial issues since the content of their dealings during the audit can be publicly released.

Ultimately, any changes to the auditor’s report should focus on reducing the expectation gap. Introducing KAM can address the performance gap due to the greater responsibility required of auditors, although the expectation gap can be broadened since users might unreasonably expect auditors to offer investment advice in KAM. To remedy this, it is crucial to educate stakeholders on what an audit provides, to conduct studies on changes in corporate...

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