Question 6 (20 marks)

ISA 701 Communicating Key Audit Matters in the Independent Auditors Report is a Statement intended to enhance the communicative value of the audit report and provide users with a better understanding of the audit. Consider the following:

1. The auditor of Titles Ltd, a listed company, provided the audit committee with a timetable for the upcoming financial year-end audit. (2) 2. In terms of the basic evidence gathered on the audit of Pulsar Ltd, a listed company, the auditor was of the opinion that the directors impairment write-down for a particular piece of machinery was understated. The matter was communicated to the audit committee, who, after a short discussion, agreed with the auditor and requested management to make the necessary adjustments, which they did. (2)

3. On the audit of Vyfster Ltd, a listed company, the auditor qualified the audit opinion on the basis of material misstatement due to the incomplete disclosure of directors emoluments. The directors and audit committee would not make any amendments requested by the auditor. (2)

4. On the audit of Intercom Ltd, a listed company, the audit of related parties and related party transactions required significant audit attention due to the complexity of Intercom Ltds group structure (particularly the identification of related parties). In the auditors judgement, knowledge of related parties and related party disclosures were fundamental to a users understanding of the financial statements and extensive audit resources were allocated to addressing this situation. (2)

5. At the commencement of the current year-end audit, the engagement partner of ConText Ltd, a listed company, provided the audit committee with a statement to the effect that there were no threats to the independence of the firm or the members of the audit team in relation to ConText Ltd. (2)

6. On the audit of Sandrock Ltd, based on audit evidence obtained, the auditor concluded that a material uncertainty relating to events or conditions, which cast significant doubt on the companys ability to continue as a going concern, existed. However, the audit committee and management had come to the same conclusion and adequate disclosure in the financial statements relating to the material uncertainty had been made. The auditor was satisfied with this treatment after conducting extensive procedures on the matter itself and its disclosure. (3)

7. During the course of the financial year under audit, Pinarello Ltd, a listed company, commenced a major restructuring of the company (and its subsidiaries). This required the timely and appropriate recognition of costs and provisions, which, due to their materiality and complexity, were considered by the engagement partner to give rise to significant risk. Both asset valuers and tax specialists were extensively used by the audit team to address the risk which resulted in a large increase in the annual audit fee. (3)

8. On the audit of Dominate (Pty) Ltd, the auditor was required to report a reportable irregularity to the PAAB based on evidence that the directors had implemented a scheme to evade significant municipal business levies by making fraudulent declarations relating to turnover and employment numbers. The directors have ignored the auditors communications with them on the matter. (2)

YOU ARE REQUIRED TO:

(a) Define the term key audit matter. (2)

(b) Discuss whether each of the matters above (1-8) should be communicated in the audit report as a key audit matter. Your discussion should include your reason(s) for including or excluding each matter. (18)