Auditors' Perspective on Disclosing Key Audit Matters in the Independent Auditor's Report

Document Type : Research Paper

Authors

1 Assistant Prof., Department of Accounting, Faculty of Economics and Social Science, Bu-Ali Sina University, Hamedan, Iran.

2 Ph.D. Candidate, Department of Accounting, Faculty of Economics and Social Science, Bu-Ali Sina University, Hamedan, Iran.

10.22059/acctgrev.2025.387737.1009059

Abstract

Objective
Since 2022, the implementation of Audit Standard No. 701, titled "Communication of Key Audit Matters" in the Independent Auditor's Report, has been mandatory in Iran. According to this standard, the auditors must communicate their judgment regarding what constitutes a Key Audit Matter (KAM). Given the judgmental nature of the disclosure of the client's Key Audit Matters by the auditor, the importance of this issue lies in whether the matters outlined in Standards 701, 706, and 570 are sufficiently clear and appropriate for auditors to classify the identified issues correctly as KAMs, emphasis-of-matter paragraphs, or going concern uncertainties. This research examines the adequacy and accuracy of classifying the requirements of Audit Standard 701 (disclosure of Key Audit Matters) in comparison to Standard 706 (emphasis-of-matter and other explanatory paragraphs in the Independent Auditor's Report) and Standard 570 (going concern).
Methods
This applied research is based on a survey of members of the Iranian Association of Certified Public Accountants (IACPA). The study employs a cross-sectional method with a sample size of 128 auditors and utilizes a researcher-developed questionnaire. The collected data is analyzed using the Z-test to assess auditors' confusion in interpreting and accurately classifying the issues outlined in the aforementioned standards.
Results
The findings indicate that the current explanations within Standard 701 are not sufficiently clear, and they do not adequately assist some auditors in identifying all Key Audit Matters from the various issues they encounter during an audit. The results show that many auditors may be confused in identifying some of the items that should be included in the new section of the audit report, the key audit matters section, and this confirms the need for more guidance in the audit report standards. Notably, auditors face confusion in classifying issues under the emphasis-of-matter paragraph. However, they have correctly identified matters related to going concern uncertainties. The results of supplementary tests for the difference between auditor gender, job position (supervisor, manager, and partner), and auditor education indicate no significant difference in these classifications.
Conclusion
Given the recent development of new auditing standards and the changes in the audit report structure aimed at increasing awareness, the results of this study are significant for standard setters and regulatory bodies. These findings suggest revising the clarifications in Standards 701 and 706 and closely examining their interrelationships. Including practical guidance as an appendix to the relevant standards, particularly the new Key Audit Matters standard, can reduce differences in auditors' interpretations. This study, conducted in Iran, is one of the first to investigate the adequacy of the explanations in the Key Audit Matters (701), emphasis-of-matter (706), and going concern (570) standards and how auditors comprehend these explanations when forming their opinions on the financial statements of clients. The results of this research could aid standard setters in evaluating the effectiveness and clarity of the new auditing standards, particularly Standard 701. The findings of this research may help the auditors and auditing standard setters determine whether additional changes are needed in the current standard 701 to provide a completer and more precise picture of major auditing issues.
 

Keywords

Main Subjects

References

 
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Accounting and Auditing Review
Volume 32, Issue 2
2025
Pages 310-342

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