What are key audit matters (KAMs)?

Key audit matters (KAMs) are defined as matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements. This concept is based on the premise that KAMs not only reflect the areas that required significant auditor attention but also those that involve complex judgments, high risk, or significant transactions that could impact the financial statements.

When identifying KAMs, auditors consider various factors, including the nature of the issues, their complexity, and how they relate to the overall audit. The inclusion of KAMs in the auditor's report serves to enhance transparency and provide users of financial statements with insight into the key issues faced during the audit process, thereby fostering a better understanding of the financial statements and their associated risks.

In contrast, matters of low significance (the first choice) do not qualify as KAMs since they lack the level of importance that warrants discussion in the audit report. Issues related to operational efficiency (the second choice) typically fall outside the scope of financial statement audits and do not pertain directly to the KAMs framework. Lastly, general observations made during auditing (the fourth choice) are broader observations that may not address the specific criteria for KAMs, which focus on significant matters