🔥 KAM vs EOM vs Other Matter — the priority trap SA 701 applies to the audit of Nova Ltd.

🔥 KAM vs EOM vs Other Matter — the priority trap

SA 701 applies to the audit of Nova Ltd.

During the audit, the auditor encounters the following independent matters:

Matter 1

A significant litigation matter required significant auditor attention and was one of the matters of most significance in the audit. It is appropriately disclosed in the financial statements. The matter is also fundamental to users’ understanding of the financial statements.

Matter 2

After the reporting date but before the auditor’s report, a major natural disaster substantially affects the entity’s operations. It is appropriately disclosed in the financial statements and, although fundamental to users’ understanding, the matter did not require significant auditor attention.

Matter 3

The auditor has expressed a qualified opinion because of a material but non-pervasive misstatement relating to a particular accounting treatment. No other matter was determined to be of most significance in the audit.

Matter 4

The financial statements of a component were audited by another auditor, and the current auditor’s report is required to refer to that fact under the applicable reporting circumstances.

Which ONE of the following is the most appropriate classification?

A. Matter 1 should be communicated as a KAM; Matter 2 may be communicated through an EOM; Matter 3 is dealt with through the Basis for Qualified Opinion with an appropriate reference in the KAM section; and Matter 4 may require an Other Matter paragraph where the reporting circumstances warrant such communication.

B. Matter 1 should be communicated through an EOM because it is fundamental to users; Matter 2 should be a KAM because all significant subsequent events are automatically KAMs; Matter 3 should be separately described as a KAM; and Matter 4 should be included as an EOM.

C. Matter 1 should be reported as either a KAM or EOM, at the auditor’s choice; Matter 2 cannot be communicated because it did not require significant auditor attention; Matter 3 must be described as a KAM because modified opinions do not prevent KAM communication; and Matter 4 is necessarily part of the KAM section.

D. Matter 1 should be communicated as an EOM because fundamental importance takes precedence over KAM classification; Matter 2 should be a KAM because subsequent events are inherently significant; Matter 3 should be excluded from the KAM section without any reference to the Basis for Qualified Opinion; and Matter 4 should ordinarily be presented as a KAM.