The Financial Reporting Council of Nigeria (FRCN) in its determined effort to entrench transparency and probity in the nation’s financial sector has released Rule 9 bordering on the application of International Standard on Auditing (ISA) 701,which hinges on the need for Independent auditors to communicate Key Audit Matters (KAM) in their report.
In a statement by the Executive Secretary of the FRC Mr. Jim Obazee, the release of the “Rule 9” was in accordance with sections 8(2) and 53(2) of the Financial Reporting Council of Nigeria, Act No. 6 2011, (FRC Act, 2011).
According to Obazee, the scope of the rule 9 which hinges on the application of ISA 701 deals with the auditor’s responsibility to communicate key audit matters in the auditor’s report, adding that it was intended to address both the auditor’s judgement as to what to communicate in the auditor’s report and the form and content of such communication.
He stated that the purpose of communicating key audit matters was to enhance the communicative value of the auditor’s report by providing greater transparency about the audit that was performed.
He further explained that communicating key audit matters provides additional information to “intended users” of financial statements to assist them in understanding those matters that, in the auditor’s professional judgement, were of most significance in the audit of the financial statements of the current period.
He added that communicating KAM could also assist “intended users” in understanding the entity and areas of significant management judgement in the audited financial statements.
Obazee noted however that communicating KAM in the auditor’s report was not substitute for existing disclosure requirements by the Council among others:
Disclosures in the financial statement that the applicable financial reporting framework requires management to make, or that are otherwise necessary achieve fair presentation;
Auditor expressing a modified opinion when required by the circumstances of a specific audit engagement in accordance with ISA 705 (Modifications to the opinion in the Independent Auditor’s Report- Revised);
Reporting in accordance with ISA 570 (Going Concern- Revised) when a material uncertainty exists relating to events or conditions that may cast significant doubt on any entity’s ability to continue as a going concern; or a separate opinion on individual matters.
He maintained that Independent Auditors shall comply with provisions of ISA 701 for audits of financial statements and shall take effect on Decembers 15, 2016.