The historical reporting changes and who they covered
The enhanced standards issued in July 2015 applied to audits of periods ending on or after 15 December 2016. The package included revised SSAs 700, 705, 706, 570 and 260, new SSA 701 and conforming amendments. SSA 701 required listed-entity reports to communicate matters of most significance in the current-period audit. The source’s listed-entity definition covers shares, stock or debt quoted or listed on a recognised exchange, or marketed under exchange or equivalent-body regulations. Its close-call going-concern discussion applies to all audits. The bulletin anticipated ACRA’s 2017 review focus and supplements standards rather than replacing them.
Start with governance communications and update the final decision
KAMs are selected from matters communicated with those charged with governance, with significant risks included in planned scope and timing communications. Planning and summary memoranda presented to audit committees were typical starting records. ACRA encouraged early discussion of provisional KAMs, using prior-year experience for recurring audits and updating for current developments. Draft descriptions help governance understand the basis, provide feedback and avoid last-minute surprises. Provisional choices are not final: actual results and evidence determine the final list, descriptions and documented reasons for changes.
Filter one: significant auditor attention
The first filter considers higher assessed material-misstatement risks or significant risks; significant auditor judgements over areas requiring major management judgement, including highly uncertain estimates; and significant events or transactions affecting the audit. These are explicit considerations, not an exclusive list. High hours alone do not establish significance if caused by routine volumes, geographical spread or normal business size. Shortlisted matters must be recorded. Although the standard did not require a rationale for every initial matter, ACRA strongly recommended recording why a matter in one of those three categories was not shortlisted. This recommendation supports inspection explanations and future-year reassessment.
Filter two: matters of most significance
Compare the relative importance of shortlisted matters to identify those most significant in this specific current-period audit. For every shortlisted matter, document why it is or is not a KAM. Useful considerations include importance to financial-statement users, complexity or subjectivity of accounting-policy selection relative to industry peers, and the audit effort needed. A final count is a sense check, not a quota. The cited historical UK experience reported averages from 3.1 to 4.4 risks and a maximum no greater than eight; ACRA expressly did not prescribe a KAM number. Those statistics are neither a Singapore minimum nor a cap.
Describe significance, actual work and related disclosures
Each KAM description should explain why it was most significant, how it was addressed and any related financial-statement disclosure. The reasons and procedures must match the audit file. For example, do not claim receivable confirmations were sent if the actual work instead examined contracts and subsequent receipts. Reporting KAMs does not change audit scope or excuse deficient procedures. ACRA encouraged entity-specific language, explanation of the matter rather than merely listing procedures, and concise, understandable wording. Governance was encouraged to explain its oversight of significant reporting issues, while auditors should be ready to answer stakeholder questions at AGMs.
The property-group example: seven starting matters and six shortlisted
The example group develops and invests in local and overseas properties, establishes a Country X residential joint venture and changes its group accounting system. Seven governance matters are revenue recognition, foreseeable-loss provisions, investment-property valuation, management override, the new venture, sale-property realisable value and the new system. The first three involve significant risks and judgements; override is a significant risk; the venture involves judgements and a significant transaction; and sale-property value involves judgement. The system falls outside those three express categories but still attracts significant attention because of information-flow work. Sale-property value is excluded: no new stock, most old properties sold, the remaining amount below 5% of materiality, and write-downs based on comparable near-year-end sales. That 5% fact supports this example only; it is not a general KAM threshold.
Why the example selects four KAMs
The final four are project revenue, foreseeable-loss provisions, investment-property valuation and the Country X venture. The source supplies detailed selection reasoning only for valuation: properties exceed 40% of group assets; a new valuer requires evaluation of objectivity, competence, scope and methods; overseas components and local valuation experts are involved; assumptions demand significant scepticism; independent experts assist in X, Y and Z; and extensive management and governance discussion occurs. Management override is not selected because no override or journal-testing exceptions were found, Country X was familiar and the tightly drafted venture prevented unilateral control. The system is not selected despite significant IT effort: an external consultant, staff training, smooth transition, no major tested deficiencies and responsive finance teams reduced its relative significance. Neither exclusion removes the need to audit those areas.
The example valuation disclosure is specific rather than a template
The illustrated description links significance to the material carrying amount, the over-40% asset share and judgemental fair-value inputs, with references to the relevant notes. It describes evaluating the new valuer’s objectivity, competence, appointment terms, scope and methods; appointing independent property experts in X, Y and Z; comparing assumptions with independently obtained information; and investigating differences and necessary adjustments. The source’s yy amount and bb/zz note labels are placeholders, not real figures. The example does not supply descriptions or complete selection documentation for the other three final KAMs, so these should not be invented.
Close-call going concern still requires disclosure
A close call arises when events or conditions may cast significant doubt, but after considering management’s plans both management and auditor conclude that no material uncertainty exists. Revised SSA 570 required evaluation of whether related disclosures were adequate under the reporting framework. FRS 1 paragraph 122 required disclosure of management’s judgements with the most significant effect on recognised amounts; the source links this to the July 2014 IFRIC agenda decision. Management and governance retain primary assessment and communication responsibility, while the auditor challenges disclosure quality. A no-material-uncertainty conclusion does not make the underlying event and judgement irrelevant.
The supplier-loss example and reporting consequence
An entity loses its principal supplier. The parent arranges temporary compatible supplies from a related company, negotiates customer acceptance of changed product specifications and searches for a permanent replacement. After evaluating effectiveness and viability, management and auditor conclude that no material uncertainty remains. The financial statements should still describe the loss, mitigating actions and management’s judgement. If disclosure is absent or inadequate, the auditor considers the effect on the report, including modifying the opinion where necessary. This example illustrates adequate disclosure in a close call, not an automatic assurance that parent support removes uncertainty in every case.
Official source
This article independently explains the substantive contents of the official PDF, including the relevant conditions, procedures and annexes. The linked document remains the authoritative source for its original wording, and later changes should be checked separately.
Read the official PDF ↗