Key Audit Matters (KAM)

The auditor starts with the matters discussed with those overseeing governance, such as the audit committee, and picks those that needed the most attention. Typical choices are complex estimates, impairment tests, revenue risks and major acquisitions. For each one, the report states why it was significant and how the audit dealt with it. Key audit matters do not change the opinion and are not a separate opinion on the item. ISA 701 requires them for listed entities, and the PCAOB uses the term critical audit matters. Emphasis of matter is a different device: a paragraph that draws readers to something already properly disclosed in the statements, such as a major uncertainty or an important later event, which the auditor sees as fundamental to understanding them. Neither paragraph is a qualification. Standard wording is identical across companies, so this section is where one audit differs from another.

The audit report of a listed construction company names two key audit matters. One is the recognition of revenue on long-term contracts, which depends on estimates of cost to complete. The other is the carrying value of goodwill from a recent acquisition. For each, the auditor explains the risk and the work done, including comparing past estimates with outcomes. The opinion itself remains clean.