What is the difference between a modified opinion and a Key Audit Matter (KAM)? Can the same issue be both?
A core Audit & Assurance interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
A modified opinion is issued when financial statements are materially misstated (qualified, adverse) or the auditor cannot obtain sufficient evidence (disclaimer). A KAM is a matter of most significance in the audit, communicated in the auditor's report for listed entities. The same issue can be both if it leads to a modified opinion; however, if the matter is pervasive, it might be excluded from KAMs because it's already addressed in the basis for modification paragraph. KAMs are typically for unmodified opinions.
WHAT INTERVIEWERS LISTEN FOR
- ✓Modified opinion relates to material misstatement or scope limitation
- ✓KAM communicates significant audit matters
- ✓Same issue can be both but often excluded if pervasive
- ✓KAMs usually for unmodified opinions
COMMON MISTAKES
- ✗Confusing KAM with emphasis of matter
- ✗Saying KAM only for modified opinions
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