# SA 701 — Communicating Key Audit Matters (KAM)

## 1. What are KAM?

KAM are those matters that, in the auditor's judgment, were of MOST significance in the audit of the current period's FS. They are selected from matters communicated with TCWG.

## 2. Purpose of Reporting KAM

To assist users in understanding matters of most significance in the audit.
To enhance communicative value of the report by providing greater transparency about the audit.

## 3. Scope — What KAM is NOT

Communicating KAM is not a substitute for:

Disclosures in FS required by AFRF.
Reporting per SA 570 (going concern).
Expressing a modified opinion under SA 705 when required.
A separate opinion on individual matters.

## 4. Determining KAM

Auditor shall determine KAM from matters communicated with TCWG by considering:

Effect on the audit of significant events or transactions during the period.
Areas involving significant auditor judgment for matters involving significant management judgment (e.g. estimates with high uncertainty).
Areas of higher assessed ROMM or significant risks.

## 5. Wording in the Report

Introductory language of the KAM section shall state:

KAM are those matters that, in the auditor's professional judgment, were of most significance in the audit of the current period's FS.
These matters were addressed in the context of the audit of FS and the auditor does NOT provide a separate opinion on these matters.

## 6. When There Is No KAM

The report must still have a paragraph mentioning this, e.g.:

> “Except for the matter described in the Basis for Qualified (Adverse) Opinion or Material Uncertainty Related to Going Concern section, we have determined that there are no other KAM to communicate.”

## 7. Interaction with SA 705 (Disclaimer)

SA 705 prohibits the auditor from communicating KAM when the auditor disclaims an opinion, UNLESS required by L&R.

## Quick Recall Summary

KAM = matters of most significance, drawn from those communicated with TCWG.
KAM never substitutes disclosure, going concern reporting, or modified opinion.
Disclaimer → No KAM (unless L&R says so).

Worked example

### Example 1

Q. During the audit of a listed company, the auditor identifies impairment of goodwill as an area of significant management judgment and high estimation uncertainty. The auditor performed extensive procedures. Should this be reported as KAM?

A. Yes. Goodwill impairment involves significant management judgment, high estimation uncertainty and likely high ROMM. It is exactly the type of matter SA 701 expects to be reported as a KAM, with description of why it was significant and how the audit addressed it.

### Example 2

Q. The auditor has disclaimed an opinion due to inability to obtain SAAE on multiple FS areas. The CFO insists the report should contain a KAM section. Comment.

A. SA 705 prohibits communicating KAM when the auditor disclaims opinion, unless L&R require it. Therefore, the auditor should not include a KAM section unless legally mandated; the disclaimer is the primary communication.

⚠️ Common exam mistakes

Treating KAM as a substitute for a qualified opinion — it is not.
Including matters as KAM that were not communicated with TCWG.
Forgetting to include the 'No KAM' paragraph when none exist.
Adding KAM when the auditor has disclaimed opinion (prohibited unless L&R require).

Reference:

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

SA 701 - Communicating Key Audit Matters in the Independent Auditor's Report

Worked example

⚠️ Common exam mistakes