Key Audit Matters: Where Your Auditor Spent the Most Attention

Key Audit Matters show where an external audit demanded significant attention. Here is what Jamaican boards, CEOs and CFOs should look for.

An external audit can cover thousands of transactions, dozens of account balances and numerous management estimates. Yet some areas inevitably require more auditor attention than others, either because the amounts are large, the assumptions are difficult or the underlying accounting involves significant judgement.

Key Audit Matters give users a window into some of those areas. Under ISA 701, KAMs are selected from matters communicated with those charged with governance and represent matters of most significance in the audit of listed entities.

For a director, the useful question is not simply “What were our KAMs?” It is “Why did these particular areas require significant audit attention, and what does that tell us about the business?”

KAM does not mean mistake

This is an important distinction. A Key Audit Matter is not a list of things management got wrong.

Think about airport security. Most bags pass through the same screening process, but a particular bag may require additional inspection because its contents are difficult to interpret on the scanner. More inspection does not necessarily mean something prohibited was found.

Similarly, areas involving complex valuation techniques, significant management assumptions or difficult-to-measure assets can become Key Audit Matters even when the eventual accounting treatment is appropriate.

Caribbean Cement provides a practical example

Caribbean Cement’s 2025 audit identified inventory as a Key Audit Matter. The group carried approximately J$3.68 billion in inventories at year-end, and the auditor explained that management judgement was involved in important aspects of the balance. Audit procedures included observing inventory counts and testing quantities against final inventory listings.

The company’s post-retirement medical benefit obligation was also identified as a Key Audit Matter. The reported obligation exceeded J$1 billion, and its valuation depended on assumptions such as discount rates, inflation and future medical-cost growth. The auditor noted that relatively small changes in assumptions could have a material effect on the financial statements.

Neither issue means Caribbean Cement “failed” its audit. Instead, both show how the nature of a company determines where financial reporting becomes more judgemental.

Your KAMs should make sense in the context of your business

A manufacturer may have significant inventory and plant considerations. A bank may have complex expected-credit-loss estimates. A property company may face valuation uncertainty, while another company may have significant goodwill from acquisitions.

Boards should therefore look at KAMs as a map of financial reporting complexity. If the external auditor spends significant time on an area, the audit committee should understand whether management has strong systems, controls and expertise supporting that area.

The most interesting cases are sometimes the recurring ones. If the same KAM appears for several years, that does not automatically indicate a problem because some risks are inherent to the business. It does, however, give the board an opportunity to ask whether the quality of controls, data and documentation around that area is improving.

Compare the auditor’s map with management’s map

Before reading the KAM section, imagine asking the CFO to identify the three accounting areas requiring the greatest judgement during the year. Then compare those answers with what the auditor considered most significant.

They do not have to match perfectly, but major differences can be revealing. If the auditor considers an area particularly difficult while senior management sees it as routine, the audit committee may want to understand why.

The boardroom question

For each Key Audit Matter, ask: “What made this area particularly significant to the audit, and is there anything management can do to make the underlying reporting process stronger next year?”

That turns the KAM section from boilerplate disclosure into useful governance information.

Looking for an independent external auditor for a medium or large Jamaican organisation? Speak with Charles O’Connor & Associates about your next audit engagement.

Call: 876-908-0486-7
Email: [email protected]
Website: coajamaica.com