Key Audit Matters


The Indonesian Institute of Certified Public Accountants (IAPI) has established and ratified Auditing Standard (SA) 701 (2021) regarding “Communicating Key Audit Matters in Independent Auditors’ Reports.” The SA is effective for audits of financial statements for periods beginning on or after January 1, 2022. The purpose of communicating Key Audit Matters is to increase the communicative value of independent audit reports by providing better transparency of audits that have been performed.

This is to provide additional information to the intended users of the financial statements to assist in understanding what the auditor considers most significant in the audit of the current financial statements and to assist the engaged users in understanding the entity and areas of substantial management consideration in the audited financial statements.

ISA 701 applies to the audit of a set of general-purpose financial statements, in conditions when the auditor decides to communicate Key Audit Matters in the auditor’s report, and when the auditor is required by regulation to communicate Key Audit Matters in the auditor’s report.

Previously, users of financial statements may not give full attention to the entire contents of the auditor’s report. Some users may be interested only in “audit opinion,” not how the audit is conducted or the area on which the audit is specifically focused. This is possible because the auditor’s report for each entity is written in a standard description. But today, users of financial statements may have to be more careful in reading financial statements, especially for listed companies.

With the issuance of this ISA 701, the auditor must communicate the Key Audit Matters and how the audit is conducted in the auditor’s report for the listed companies, which must be adjusted to each entity, which will provide more insight into the audit. This change will also provide greater transparency of audits carried out and will benefit users.

What is the Key Audit Matter?

  • Matters which, in the auditor’s professional judgment, are the most significant in auditing the current period’s financial statements.
  • Key audit matters are matters that have been determined by the auditor to be communicated to those charged with governance (TCWG).
  • Matters that require significant attention from the auditor in conducting the audit, the auditor should consider the following:

a. Areas with a higher assessed risk of material misstatement or identified significant risks,

b. The auditor’s significant judgments relating to areas of the financial statements that involve management’s judgment, including accounting estimates that are identified and have high estimation uncertainty,

c. The impact on the audit of significant events or transactions.

The first step in determining the Key Audit Matters

  • Step 1

Matters are communicated to those charged with governance.

  • Step 2

Matters that require significant attention from the auditor.

  • Step 3

The most significant matters in the audit.

Therefore, it can be concluded that Key Audit Matters are significantly affected by their size, area, complexity, nature, and business environment, as well as facts and circumstances encountered by the auditor during the audit process.

However, there are circumstances when a matter determined to be a Key Audit Matter is not communicated in the independent auditor’s report, such as where law or regulation prohibits it, or in scarce circumstances, where an adverse consequence of public communication of a matter is reasonably expected. Outweighs the benefit of the public interest in communicating it.

Key Audit Benefits

  • Allows management and those charged with governance to consider whether a new or improved disclosure could be helpful given that it will be communicated in the auditor’s report.
  • Main Audit Matters are expected to provide additional information that can assist users of financial statements in understanding the entity and significant areas of management’s consideration in the audited financial statements

Changes in the audit report