Audit Matters: Critical versus Key

Audit Matters: Critical versus Key

Auditor’s reports are changing, be in the know on how this guidance could affect you.

Pieter Fourie

Partner, Mining

KPMG in Canada


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Aerial view of an open pit mine with excavator and truck

What are the key changes?

In late 2018 amendments to Canadian Auditing Standard 701, Communicating Key Audit Matters in the Independent Auditor's Report ("CAS 701") were approved by the AASB, requiring auditors to communicate key audit matters ("KAMs") in the auditor's report for audits of complete sets of general purpose financial statements.

The PCAOB previously released AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion ("AS 3101") in 2017. The second phase of implementation of the standard invokes requirements for auditors to communicate critical audit matters ("CAMs") in the auditor's report.

When are these changes coming into effect?

For Canadian companies listed on the TSX (other than entities that are required to comply with National instrument 81-106, Investment Fund Continuous Disclosure) the requirements to communicate KAMs will be effective for financial years ending on or after December 15, 2020 (therefore effective for those companies with December 31, 2020 financial year ends).

Communication of CAMs will be required for large accelerated filers in the US subject to PCAOB requirements from June 30, 2019 (for most Canadian mining companies also listed in the US this means December 31, 2019 financial year ends, depending on various factors including market capitalization), with other entities subject to PCAOB requirements required to communicate CAMs from financial years ended on or after December 15, 2020 (i.e. December 31, 2020 financial year ends).

KAMs vs CAMs

Both the AASB's and the PCAOB's auditor reporting standards were adopted with the overall intent of communicating matters in the auditor's report that are likely to be of interest to users of the auditor's report. The PCAOB has stated that although the processes of identifying these matters vary across jurisdictions, there are commonalities in the underlying criteria regarding the matters to be communicated and the communication requirements, such that expanded auditor reporting could result in the communication of many of the same matters under the various approaches.

While there are similarities in the specific factors and other considerations that an auditor will use in determining KAMs and CAMs, there are certain differences in their definitions which may result in differences. For example, the implementation of a new information technology ("IT") system during the period may be an area of significant auditor attention and may in some cases be identified and communicated as a KAM. Since the PCAOB's definition of a CAM requires that the matter relate to an account or disclosure that is material to the financial statements, the new IT system would likely not in and of itself result in a CAM.

Key Audit Matter survey

For some internationally listed mining companies, where audits are performed in accordance with the International Standards of Auditing ("ISAs"), the communication of KAMs has been effective for a number of years. KPMG surveyed 14 international mining companies' auditor's reports on the number and nature of KAMs reported.

Please contact your local KPMG professional for more information.

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