Key Audit ASA 701

AUDITING & ASSURANCE

Key Audit ASA 701
Executive Summary
The report is primarily based on Key audit matters and the reason how it came into practice. The
main reason behind the introduction of KAM that is ASA 701 was the downfall of Lehman
Brothers. Communication of key audit matters will assist the auditor in the preparation of an
audit report. Not sharing key audit matters with the auditors will not necessarily do any good to
the organization rather it will have an adverse impact on the business activities of the same. A
failure to communicate key audit matters on the directors and top level management part can
harm the hard earned positive reputation of an organization and can also impact the financial
well being of the same. The same scenario was observed in the case of Lehman Brothers.
Therefore, it is very essential for the board and top level executives to disclose key audit matters
to the auditors so as to not only ease the process of auditing and preparation of audit reports but
also in order to enhance the financial well being and goodwill of the company. The report further
discusses ASA 701 in the light of listed banks of ASX.
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Key Audit ASA 701
Contents
Introduction.................................................................................................................................................3
Case of Lehman Brothers Limited...............................................................................................................4
Key audit matters involved in the banking industry....................................................................................5
Westpac banking corporation......................................................................................................................5
Commonwealth Bank of Australia..............................................................................................................6
ANZ Bank...................................................................................................................................................7
Macquarie Bank..........................................................................................................................................7
AMP Bank limited.......................................................................................................................................8
Conclusion.................................................................................................................................................10
References.................................................................................................................................................11
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Key Audit ASA 701
Introduction
The implementation of ASA 701 has bought about a new revolution in the accounting and
auditing industry. This new standard puts a compulsion on the auditors so as to make necessary
disclosures related to KAMs in their auditors’ report. The auditors must delegate their
responsibilities efficiently so as to trace key audit matters from the financial statements of the
audit firm (Matthew, 2015). The matters identified by an auditor must be assessed in an effective
manner so as to ascertain whether the same are KAMs or not. The matters are labeled as KAMs
if the same has the tendency to disrupt the functioning and financial performance of an
organization. It is the duty of an auditor to identify such areas that have the possibility of
material manipulation and highlights even the slightest chance of related party transactions
(AUASB, 2015).
The auditor labels such matters as key audit matters that possess a threat to the business
operations of the company. These matters are crucial in the auditors’ judgment. It is important
for an auditor to detect key audit matters from the financials and convey the same to the
management of the company so that necessary measures can be taken on time (Needles &
Powers, 2012). If management fails to address these matters then there are huge possibilities for
the financial performance of the company to suffer and even the same might collapse. The
auditors must also offer professional judgment to the management pertaining to rightly deal with
the key audit matters of the company (Nicolaescu, 2013). The auditors must also offer all the
necessary disclosures with respect to key audit matters in their auditors’ report. This will
facilitate the transparency of the audit reports and this will ultimately benefit the readers of the
financial statements as they can easily make significant decisions (CAANZ, 2016).
Matters that make it difficult for an auditor to arrive at a verdict are to be labeled as key audit
matters. It is necessary for an auditor to trace such areas that bear a greater level of risks and also
where there is an involvement of related party transactions (Niemi & Sundgren, 2012). Areas
that indicate the presence of auditors’ and management judgment must also be prioritized by an
auditor. Transactions that have largely impacted the audit processes and areas that have a high
level of internal control team must also be prioritized by an auditor for assessment (AUASB,
2015). It is highly important for the auditors to ensure that the audit processes are conducted in a
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