KAMs are defined as those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. KAMs are selected from matters communicated with those charged with governance.
Examples of KAMs include:
- Significant estimates
- Significant unusual transactions
- Certain types of revenue
- Goodwill and other intangible assets
- Gain or loss contingencies
- Areas with internal control deficiencies
The auditor should determine which of the matters above were of most significance and therefore are KAMs.
Reporting KAMs supplements the reporting on financial statements and is not a substitute for:
- Required financial statement disclosures,
- A modified opinion,
- Reporting on going concern issues, or
- Separate opinions on individual matters.
When including KAMs in the audit report, the auditor should make reference to the related footnote disclosure (if applicable), describe why the matter was considered to be significant and therefore a KAM, and how the matter was addressed in the audit.
As KAM reporting is optional, entities can choose whether or not to have the auditor include this section in the audit report.
Learn more in the short video below!
Mahnaz Cavalluzzi, CPA
Mahnaz has been a member of Cerini & Associates’ audit and consulting practice area for over 8 years where she focuses on serving nonprofit organizations, education, and healthcare clientele. Mahnaz has experience in financial statement audits, financial statement reviews, tax return preparation, cost report filing, and other consulting. Mahnaz brings her expertise, diversified background, and helpful approach to all of her engagements.