Key audit matters, other information and CAMA 2020 reporting

A standard audit report says very little that is specific to the company. Two readers of two different reports might not be able to tell which audit was harder. Key audit matters were introduced to change that. They tell the reader which areas took the most auditor attention, why, and what the auditor did about them.

This topic covers International Standard on Auditing (ISA) 701 on key audit matters, how they interact with other paragraphs, ISA 720 on other information, and the reporting requirements of the Companies and Allied Matters Act 2020 (section 404 and the Fifth Schedule). November 2025 Question 1(e) asked candidates to draft key audit matters for a fintech company’s reliance on artificial intelligence, for 5 marks. The drafting method is in this topic, with a worked example.

ISA 701: key audit matters

ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report, was introduced in 2015 as part of the International Auditing and Assurance Standards Board (IAASB)’s revisions to make the audit report more informative and useful to users.

When KAMs are communicated

• in the auditor’s report of all listed companies; and
• when law or regulation requires the auditor to communicate KAMs.

A KAM section is a standard element of an unmodified report for these entities. It is not a modification, and it must not be confused with a modified opinion, an emphasis of matter paragraph or an other matter paragraph.

What a KAM is

Key audit matters are those matters that, in the auditor’s professional judgement, were of most significance in the audit of the financial statements of the current period. They are selected from matters communicated with those charged with governance.

Notice that KAMs are defined by reference to the auditor, as the areas that needed significant auditor attention. A modified opinion, emphasis of matter and other matter paragraph are defined by reference to the user.

Determining KAMs

The auditor takes into account:

1. areas of higher assessed risk of material misstatement, or significant risks;
2. significant auditor judgements relating to areas that involved significant management judgement, including accounting estimates with high estimation uncertainty; and
3. the effect on the audit of significant events or transactions during the period.

The auditor then decides which of these were of most significance and are therefore KAMs. The IAASB’s 2016 paper says KAMs are a subset of the matters that required significant auditor attention, which are themselves a subset of the matters communicated with those charged with governance. In limited cases there are no KAMs, and the report says so.

Communicating KAMs

KAMs go in a separate section headed “Key Audit Matters”. The introduction says that these are the matters of most significance in the audit of the current period, that they were addressed in the context of the audit as a whole and in forming the opinion, and that no separate opinion is given on them. For each KAM the description explains:

1. why the matter was considered to be one of most significance and so a KAM; and
2. how the matter was addressed in the audit.

The syllabus gives two IAASB examples. Goodwill: the annual impairment test was significant because the balance was material and the assessment was complex and judgemental, depending on assumptions affected by expected market conditions. The procedures included using a valuation expert to assess the assumptions and methods, particularly forecast revenue growth and margins, and checking the disclosures about the assumptions to which the outcome is most sensitive.

Revenue recognition: the amount of revenue depended on judging whether long-term service contracts were linked to or separate from a sale, and treating them as one arrangement would lead to revenue being recognised too early. The procedures included testing controls with the firm’s own information technology (IT) specialists, and detailed analysis of revenue and its timing against expectations from industry knowledge and market data.

How KAMs interact with other matters

When a modified opinion or going concern section exists, the KAM section’s introduction is amended with a short sentence such as “in addition to the matter described in the Basis for Qualified Opinion section”. In an adverse opinion with no other KAMs, the section can say that, except for the matter in the Basis for Adverse Opinion section, there are no other key audit matters.

Reports prescribed by law

If law or regulation requires a particular layout or wording, the report can refer to ISAs only if it includes, as a minimum: a title, an addressee, an opinion section with the framework, identification of the statements, an independence statement, going concern, KAM and other information sections where applicable, management’s responsibilities and those responsible for oversight, a reference to ISAs and law and the auditor’s responsibilities, the name of the engagement partner for listed entities, a signature, an address and a date.

Where an audit follows both national standards and ISAs, the report may refer to both only where there is no conflict that would have led to a different opinion, or to no emphasis of matter paragraph that ISAs would require. The jurisdiction of the national standards is identified. If there is a conflict, it is resolved in favour of the national standards.

ISA 720: other information

The annual report often contains other information that is not covered by the audit opinion, such as a chairman’s statement, an employment report and a business review. Audited information has more credibility than unaudited information, and that credibility can suffer if unaudited information is printed beside it and is wrong or inconsistent. Users may not separate the two.

The auditor’s duties

1. Make sure the other information is clearly distinguished from the audited statements.
2. Decide with management which documents make up the annual report.
3. Arrange with management to get the final versions in good time, if possible before the date of the report.
4. Read the other information and consider whether it is materially inconsistent with the financial statements or with the auditor’s knowledge from the audit, or appears materially misstated.

If a material inconsistency seems to exist, or the other information appears materially misstated, the auditor discusses it with management and, if necessary, carries out other procedures to conclude whether the other information is misstated, the financial statements are misstated, or the auditor’s understanding of the entity needs updating.

The auditor’s response

If the other information is materially misstated, the auditor asks management to correct it and checks that it has done so. If management refuses, the auditor tells those charged with governance. If the financial statements are misstated or the auditor’s understanding must be updated, the other ISAs apply: ISA 315 (revise the risk assessment), ISA 450 (evaluate misstatements) and ISA 560 (subsequent events).

Reporting

The report has a separate section headed “Other Information” when, at the date of the report, for a listed entity the auditor has obtained or expects to obtain the other information, or for an unlisted entity the auditor has obtained some or all of it.

The section says that management is responsible for the other information, identifies it, says that the opinion does not cover it and no assurance conclusion is given, describes the auditor’s responsibility to read it and consider it, and then either says there is nothing to report or describes the uncorrected material misstatement. The audit opinion is not modified by a misstatement in the other information.

CAMA 2020 reporting

Section 404(1) of CAMA 2020 requires the auditors to report to the members on the accounts they examined, on every balance sheet and profit and loss account, and on all group financial statements laid before the company in general meeting during their term of office. Section 404(2) requires the report to state the matters set out in the Fifth Schedule.

Section 404(2) itself refers to the Fifth Schedule, and a reference to the Sixth Schedule is a slip. Use “Fifth Schedule”.

Matters to be stated

1. Whether the auditors obtained all the information and explanations that, to the best of their knowledge and belief, were necessary for the audit.
2. Whether, in their opinion, proper books of account have been kept, so far as appears from their examination, and proper returns adequate for the audit have been received from branches not visited.
3. Whether the balance sheet and, unless it is framed as a consolidated profit and loss account, the profit and loss account agree with the books of account and returns.
4. Whether, in their opinion and to the best of their information and according to the explanations given, the statements give the information the Act requires in the way required and give a true and fair view of the state of the company’s affairs at the year end and of its profit or loss for the year, or give a true and fair view subject to the non-disclosure of matters that the Second Schedule does not require to be disclosed.
5. For a holding company with group statements, whether the group statements have been properly prepared in line with the Act to give a true and fair view of the state of affairs and profit or loss of the company and its subsidiaries and associates.

The first three matters echo section 407 of CAMA 2020. Section 407(1) requires the auditors to carry out the investigations needed to form an opinion on whether proper accounting records have been kept and proper returns received from branches not visited, and whether the balance sheet and profit and loss account agree with the records and returns. Section 407(2) requires them to say so in the report if not.

Section 407(3) gives the right of access to books, accounts and vouchers, and section 407(5) requires them to consider whether the directors’ report is consistent with the accounts and to say so if it is not.

Report to the audit committee

Section 404(2) of CAMA 2020 also requires the auditor of a public company to make a report to the audit committee, which section 404(3) to (7) governs (see the topic on communicating with those charged with governance), in addition to the report to members. The Act does not prescribe its content or scope, so these are agreed in the engagement letter.

It can be argued that the communications required by ISA 260 and ISA 265 satisfy the requirement.

Note. The point for the exam is that the contents are not prescribed and are agreed in the engagement letter.

The rules in more depth

Why KAMs describe the audit and not the entity

A KAM is about where the auditor spent effort. It is not a list of the entity’s risks. That is why the description says how the matter was addressed: the procedures, the specialists and the controls tested. If the draft only describes the entity’s problem, it is incomplete.

Why a modified matter is not repeated as a KAM

The Basis for Modification section already explains it in more detail, and repeating it would confuse readers about whether the opinion is modified. The KAM section only refers to it.

Why listing first matters

The standard does not rank KAMs. If one matter is more important to users, the auditor can show this by listing it first, because the order is up to the auditor.

Worked example: drafting KAMs

Scenario. Quantum Pay Plc is a listed payments company. Revenue of ₦42 billion comes from bundled contracts for card processing and software, and a pricing algorithm allocates the transaction price between the components. During the year it capitalised ₦3.1 billion of development costs for the algorithm, which is 14% of total assets of ₦22 billion. Materiality is ₦420 million.

Step 1: pick the matters. Revenue is a significant risk and relies on an algorithm with high complexity. The development costs involve significant management judgement about when technical feasibility was reached and about useful life. Both are of most significance and qualify as KAMs.

Step 2: draft.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters.

Revenue allocation using an algorithm (Note 5). The company allocates the price of bundled contracts between processing and software using a pricing algorithm. Revenue of ₦42 billion is material, and the algorithm’s logic and data inputs are complex and difficult for users to see, so errors in data or logic could cause revenue to be misstated. This was a significant risk.

We tested the design and operation of the automated controls over the algorithm and the data feeding it with our IT specialists, re-performed the allocation for a sample of contracts and compared the results with the company’s output, and tested revenue cut-off.

Capitalised development costs (Note 12). The company capitalised ₦3.1 billion of costs of developing the algorithm. This was significant to our audit because the amount is 14% of total assets and management has to judge when technical feasibility and the other capitalisation criteria were met and what useful life to use.

We tested a sample of costs to supporting records, assessed management’s evidence that the criteria were met and challenged the useful life and the impairment assessment.

Step 3: check against the method. The draft has the section title, two matters, and for each one a why and a how. It does not give an opinion on the matters, and it does not repeat a matter that causes a modification.

How to score full marks

• Start with the title. A mark is given for “Key Audit Matters” with the standard introduction.
• One heading for each matter, with a short name and a note reference.
• Write why, then how. Why: risk, judgement, size. How: tests, specialists, controls.
• Use the case facts. Quote the technology, the amounts and the judgements in the scenario.
• Do not give an opinion on the matter, and do not duplicate a modified or going concern matter.
• For CAMA 2020, list the five matters in section 404(2) and the Fifth Schedule, and mention the report to the audit committee.

Common mistakes in the exam

• Describing the entity’s problem but not what the auditor did.
• Treating KAMs as a modification of the report.
• Including KAMs in a report with a disclaimer of opinion.
• Repeating a going concern uncertainty in the KAM section.
• Using an emphasis of matter paragraph for something that is also a KAM.
• Forgetting that KAMs apply to listed entities.

Quick revision

• KAMs: matters of most significance in the audit, selected from those communicated to governance.
• Determining: higher risk and significant risks, significant judgements, significant events.
• Describe: why a KAM and how addressed.
• No KAMs with a disclaimer. Modified and going concern matters are not repeated.
• ISA 720: read other information, ask for correction, Other Information section, opinion not modified.
• CAMA 2020 section 404(2): the five Fifth Schedule matters, and a report to the audit committee of a public company. Section 404(3) to (7) cover the committee.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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