Suryodaya Industries Ltd., a listed company, is engaged in manufacturing and distribution of consumer products. During the audit of its financial…

As per SA 701, Communicating Key Audit Matters in the Independent Auditor's Report, Key Audit Matters (KAMs) are those matters that, in the auditor's professional judgment, 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, having regard to matters involving significant auditor attention, including areas of higher assessed risk of material misstatement, significant auditor judgment and significant events or transactions. (i) The impairment assessment of goodwill involved significant management judgment and auditor judgment and required significant audit effort, including the involvement of a valuation expert. It is therefore a matter that is likely to have required significant auditor attention and may constitute a Key Audit Matter. Accordingly, if determined to be one of the matters of most significance in the audit, it should be communicated in the Key Audit Matters section of the auditor's report, with an explanation of why it was considered a KAM and how it was addressed in the audit. (ii) The fire occurred after the reporting period and is a non-adjusting subsequent event. Since it has been appropriately disclosed in the financial statements and the auditor considers it fundamental to users' understanding of the financial statements, the auditor may include an Emphasis of Matter paragraph under SA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report, with an appropriate cross-reference to the relevant disclosure. The Emphasis of Matter paragraph does not modify the auditor's opinion. Distinction The goodwill impairment matter is addressed as a KAM under SA 701 because it required significant auditor attention and may have been one of the matters of most significance in the audit. In contrast, the subsequent fire is appropriately highlighted through an Emphasis of Matter paragraph under SA 706 because it is already appropriately disclosed and is considered fundamental to users' understanding. However, inclusion of an Emphasis of Matter paragraph does not, by itself, make a matter a KAM. A matter may be both a KAM and an Emphasis of Matter only where it independently satisfies the respective requirements of SA 701 and SA 706.