SA 701 Communicating Key Audit Matters in the Independent Auditor’s Report has been applicable from audits for financial statements of listed companies since past 2-3 years. This auditing standard requires the statutory auditor to identify and report key audit matters (KAM) arising during the course of the audit. Inclusion of KAMs does not alter the auditor’s opinion, but it provides the stakeholders additional insights into the audit issues. SA 701 is intended to provide more information about the audit directly from the auditor and make the auditor’s report a ‘speaking report’ rather than a boilerplate communication.

Reporting of KAMs present a unique opportunity to the auditors to provide information to investors and other users of the financial statements about significant matters arising from the audit that required challenging, complex or subjective estimates and judgements, and the auditor’s response to address those matters. Whilst KAMs will be different for each company, often KAMs reported have a sectorial essence. For example, expected credit loss provision on loans and advances is a commonly identified and reported as KAM amongst non-banking finance companies.

In this context, this research publication intends to provide an overview of KAMs and bring out significant sector-wise analysis of KAMs that have emerged in practice. We have looked into the audit reports of 51 large companies to identify the emerging trend across 17 sectors. This research publication is intended to assist the directors, CFOs, institutional investors, regulators, auditors, shareholders and other stakeholders in understanding the reporting trend of KAM reporting amongst various sectors which can provide valuable insights.

In separate chapters, this research publication also covers the requirements of SA 701, major findings and significant sector-wise KAMs observed. Our approach is to go beyond the realms of theoretical or conceptual requirements under SA 701 and look into the practicalities of how the sample companies are complying with the requirements.