Critically Analyze and Evaluate Key Audit Matters in the Independent Auditors Report

Running head: CRITICALLY ANALYZE AND EVALUATE KEY AUDIT MATTERS IN
THE INDEPENDENT AUDITORS REPORT
Critical analysis and evaluation of key audit matters in the independent auditors report
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CRITICALLY ANALYZE AND EVALUATE KEY AUDIT MATTERS IN THE
INDEPENDENT AUDITORS REPORT
Executive summary:
The report elucidates the introduction of the new auditing standard in the wake of financial
crisis.ASA 701 and its implementation have been assessed by evaluating the key audit
matters of the companies chosen from ASX. These companies comprise of QBE Insurance
group, Commonwealth bank of Australia, Macquarie group limited, Queensland bank and
Pendal group limited. For the detailed analysis for the reason for the introduction of ASA 701
has been explained by describing the case of Lehman brother. In addition to this, the revision
of ASA 570 has also been analyzed and its importance of the auditors has also been
illustrated.

CRITICALLY ANALYZE AND EVALUATE KEY AUDIT MATTERS IN THE
INDEPENDENT AUDITORS REPORT
Table of Contents
Introduction:...............................................................................................................................4
Discussion:.................................................................................................................................4
Rationale and objectives of key audit matters:..........................................................................4
Prerequisite and application of key audit matter:.......................................................................4
Issue of Lehman brother case:....................................................................................................4
What did auditors do wrong?.....................................................................................................4
How key audit matters address the case:....................................................................................4
Revision of ASA 570:................................................................................................................4
Evaluating the going concern importance in auditor’s report:...................................................4
Evaluating the efficiency of key audit matters in the financial report of the chosen banks:.....4
Do key audit matters disclosures provide more information to users?......................................4
Conclusion:................................................................................................................................4
References list:...........................................................................................................................5

CRITICALLY ANALYZE AND EVALUATE KEY AUDIT MATTERS IN THE
INDEPENDENT AUDITORS REPORT
Introduction:
The paper intends to conduct an analysis on the new auditing standard “ASA 701
Communicating key audit matters in the independent audit report” that is applicable for the
audit of the financial report for the financial year. It is inferred from the evaluation of the
reasons associated with the introduction of the standard that the failure of organizations and
financial crisis has resulted in the standard setter making improvement to the o auditing
standard as it did not fulfill all the criteria of fair representation. In this regard, the case of
Lehman brothers has been presented and the auditing failure and its associated reasons are
demonstrated. The facts presented under the new auditing standard are accounted for
conducting an analysis of the key audit matters of the companies chosen from the banking
sector. For the analysis of the key audit matters six major operating banks have been chosen.
In addition to this, the revision of ASA 570 has been analyzed and the reasons why the issue
of going concern is considered crucial in the process of auditing is explained in the further
section of the report.
Key audit matters forms the most important part of the auditing process because such
matter is considered as significant and influence the materiality of the account in their
professional judgment. The new auditing standard mandates the communication of the key
audit matters identified by the auditors in their independent auditor report (Brasel et al.
2016). This also helps in enabling other auditors to decide on whether such matter should be
included in the auditor report.
Discussion:
Rationale and objectives of key audit matters:
The ASA 701 entrust the auditor with the responsibility of communication the key
auditor matters in the report published by them. It helps in addressing the judgment of auditor
as to what should be communicated in the report along with the content and form of
communication.
The objective of introducing this standard is to provide greater transparency to the
users of financial statement about the audit hat has been performed by enhancing the
communicative value of the auditor’s report. In addition to this, users are provided with the
additional information that assists them in gaining an understanding of the matters that are of
most significance in the judgment of auditors. The areas of significant judgment and
estimates made by management are evaluated and ascertained by the user using this standard
(Cordoş and Fülöp 2015). Furthermore, users are provided with the basis that helps them in
engaging with the people charged with governance and those of management. It is required
by the auditors to form an opinion on the financial report of the entity by determining the key
audit matter.
Prerequisite and application of key audit matter:
For determining the key audit matters, the auditor is required to take into account the
matters that is communicated by the management and governance people and requires
significant attention in the auditing process. They should consider the significant judgment