Key Audit Matters (kams) in Saudi Arabia 2026: ISA 701 Requirements, Examples & CFO Checklist

Key audit matters Saudi Arabia disclosures have moved to the centre of boardroom attention as regulatory scrutiny of auditor reporting intensifies across the Kingdom. For chief financial officers, controllers and audit committee chairs at listed and large private companies, understanding how ISA 701 operates in practice, and what will appear in the auditor’s report, is now a compliance priority rather than a technical afterthought. This guide explains what counts as a key audit matter, who must disclose, how KAMs are worded, the examples most common in the Saudi market, and the documentation CFOs should assemble before year-end.

It ties the international standard directly to the expectations of the Capital Market Authority (CMA), the Saudi Exchange (Tadawul) and the Saudi Organization for Chartered and Professional Accountants (SOCPA). The aim is a single, authoritative, practical reference that cuts through generic summaries.

What Are Key Audit Matters (KAMs)?, ISA 701 Explained

Key audit matters are defined under International Standard on Auditing (ISA) 701 as those matters that, in the auditor’s professional judgement, were of most significance in the audit of the financial statements for the current period. They are selected from matters communicated to those charged with governance, typically the audit committee, and are disclosed in a dedicated section of the auditor’s report. The purpose of ISA 701 is to enhance the communicative value of the auditor’s report by providing greater transparency about the audit that was performed, rather than offering a separate opinion on individual matters.

A key audit matter is not a qualification, a disclaimer, or a statement that something is wrong with the financial statements. Instead, it highlights the areas where the auditor concentrated the most attention because those areas involved significant risk, significant management judgement, or the effect of significant events or transactions. In the Saudi context, where key audit matters disclosure is subject to heightened oversight, CFOs need to appreciate that a KAM signals complexity and judgement, not deficiency.

Purpose and Benefits

The driving rationale behind ISA 701 is investor confidence. Before KAMs became standard, auditor reports were largely boilerplate, offering a pass/fail opinion with little insight into how that conclusion was reached. ISA 701 changed that by requiring auditors to describe, in entity-specific language, why a matter was significant and how the audit addressed it. For users of the financial statements, shareholders, lenders, analysts and regulators, this provides a window into the most judgemental areas of the accounts. For Saudi listed companies, this transparency aligns with the governance expectations of the CMA and Tadawul, both of which emphasise meaningful disclosure to the market.

Types of Matters That Become KAMs

ISA 701 directs auditors to consider three principal categories when identifying candidates for key audit matters: areas assessed as having a higher risk of material misstatement or identified as significant risks; significant auditor judgements relating to areas of the financial statements that involved significant management judgement, including accounting estimates with high estimation uncertainty; and the effect on the audit of significant events or transactions occurring during the period. Matters that pass through all of these filters, and were of most significance to the audit, are those that must be reported.

It is important to distinguish KAMs from an Emphasis of Matter paragraph (which draws attention to a matter already disclosed in the financial statements) and from Other Matter paragraphs, which address matters relevant to users’ understanding of the audit or report.

Applicability of Key Audit Matters in Saudi Arabia, Is ISA 701 Mandatory and Who Must Disclose KAMs?

ISA 701 is mandatory for audits of the complete sets of general purpose financial statements of listed entities. In Saudi Arabia, the auditing standards applied in statutory audits are the International Standards on Auditing as adopted by SOCPA, which is the body responsible for the accounting and auditing profession in the Kingdom. The practical effect is that any company whose shares are listed on the Saudi Exchange must have key audit matters communicated in its auditor’s report. The standard also permits, and, in certain circumstances, local requirements or terms of engagement may require, auditors to apply ISA 701 to the audits of other entities, including non-listed public interest entities.

Evolving regulatory oversight has raised the profile of audit reporting for public interest entities, increasing scrutiny of how auditors report and how companies respond. The practical consequence for CFOs is that the quality, specificity and defensibility of key audit matters disclosure is now more likely to attract regulatory attention. Companies that previously treated KAMs as a formality should anticipate closer review of the underlying judgements and supporting documentation.

Entities most directly affected include:

• Listed companies on Tadawul. All main market issuers whose audits are subject to ISA 701 must have key audit matters reported.
• Public interest entities. Entities whose nature, size or regulated status brings them within the enhanced oversight framework.
• Large private companies. Where engagement terms, lender requirements, or local expectations call for ISA 701 to be applied, KAMs may be reported even without a listing.

CMA-Listed Companies and Tadawul Rules

The Capital Market Authority regulates the Saudi capital market, including the disclosure obligations of listed issuers, and the Saudi Exchange sets the listing rules and corporate governance framework that issuers must observe. Together, these frameworks govern the timing of financial statement filings and the issuance of the auditor’s report to the market. Because the auditor’s report, including its key audit matters section, accompanies audited financial statements that are filed with the exchange and disclosed to shareholders, the CMA and Tadawul filing timelines effectively determine when KAM language becomes public. CFOs must therefore align internal reporting timetables, audit committee approvals and market disclosure obligations so that the KAM wording is finalised and agreed before filing deadlines fall due.

Any late adjustment that changes a key audit matter can cascade into disclosure and timing complications.

SOCPA and Local Auditing Standards

SOCPA is the professional body responsible for licensing auditors and adopting the auditing standards applied in the Kingdom. By adopting the International Standards on Auditing, SOCPA brings ISA 701 into force for the audits within its scope. This matters for CFOs in two ways. First, it means the definition and reporting mechanics of key audit matters follow the international standard rather than a bespoke Saudi rulebook, so international illustrative guidance is directly relevant. Second, SOCPA-licensed auditors are accountable to the local profession’s quality and disciplinary framework, which reinforces the expectation that KAM disclosures are specific, evidenced and defensible.

How Key Audit Matters Appear in the Auditor’s Report in KSA

Under ISA 701, key audit matters are presented in a separate section of the auditor’s report, usually under the heading “Key Audit Matters,” positioned after the opinion and basis for opinion sections. The standard requires that, for each matter, the auditor describes why the matter was considered to be one of most significance in the audit and how the matter was addressed during the audit. Where relevant, the description refers to the related disclosures in the financial statements. This structure applies in the Kingdom because Saudi audits follow the ISAs as adopted by SOCPA, and the auditor’s report filed with Tadawul reflects this format.

For CFOs, the practical point is that the KAM section is entity-specific. Generic, templated language runs contrary to the spirit of ISA 701 and is increasingly disfavoured by regulators. The auditor is expected to explain the matter in terms rooted in the particular company’s facts, and to describe the audit response in a way that is meaningful to a reader. The description must not imply that the matter was not appropriately resolved, it is not a modification of the opinion, and it should connect to the notes in the financial statements so readers can navigate between the auditor’s commentary and management’s disclosure.

Example KAM Wording (Revenue; Impairment; Management Estimates)

Illustrative wording helps management anticipate how key audit matters will read. For a revenue recognition KAM, an auditor might explain that revenue is recognised across multiple contracts with varying terms and cut-off considerations, that this involved significant judgement around timing, and that the audit response included testing a sample of contracts, assessing cut-off around the period end, and evaluating management’s accounting policy against the applicable standard. For an impairment KAM, the report may note that the carrying amount of a cash-generating unit depends on cash flow forecasts and discount rates involving significant estimation uncertainty, and that the auditor challenged key assumptions, performed sensitivity analysis, and considered the adequacy of the related disclosures.

For a management estimates KAM, such as expected credit losses, the auditor describes the judgemental models and inputs and the procedures used to test them. In each case the wording cross-refers to the relevant financial statement note.

Common Key Audit Matters Examples for Saudi Companies

While every engagement is unique, the Saudi market produces recognisable patterns. The following examples illustrate where key audit matters most frequently arise, why they become significant, the typical procedures auditors perform, and the disclosure implications for management. Treat these as anonymised, market-level observations rather than references to any specific entity.

• Revenue recognition. Complex contracts, variable consideration and cut-off timing make revenue a perennial KAM candidate. Auditors test contract terms, performance obligations and period-end cut-off. CFOs should ensure revenue policies are documented and consistently applied, with clear support for timing judgements.
• Impairment of non-financial assets. Impairment of goodwill, investments in subsidiaries, property, and long-lived assets depends on forecast cash flows and discount rates under IAS 36. Auditors challenge assumptions and run sensitivities. Management must maintain board-approved forecasts and document the basis for key inputs.
• Expected credit losses (ECL). Under IFRS 9, ECL models involve significant judgement over staging, probability of default and forward-looking information. Auditors evaluate model design and inputs. Companies with material receivables or financing activity should retain model documentation and governance evidence.
• Accounting estimates with high uncertainty. Provisions, warranty obligations, long-term construction estimates and fair value measurements frequently become KAMs because of the degree of management judgement involved. Robust methodologies and contemporaneous documentation reduce audit friction.
• Related-party transactions. Group structures and connected dealings are common in the Kingdom and attract audit scrutiny for completeness, pricing and disclosure. Auditors test identification and terms. Management should maintain a complete related-party register and support the commercial basis of transactions.
• Zakat, tax and VAT exposures. Uncertain zakat and tax positions, and VAT treatment of complex transactions, can generate KAMs where the amounts are material and judgemental. Auditors assess provisions and contingent liabilities. CFOs should document positions and correspondence supporting their assessments.
• Going concern. Where liquidity, covenant compliance or refinancing risk is significant, going concern becomes a focus. Auditors evaluate forecasts and the adequacy of disclosure. Management should prepare cash flow projections and a documented assessment of mitigating actions.
• Significant events and post-balance-sheet transactions. Major acquisitions, disposals, restructurings or financing events during the period often drive a KAM because of their effect on the audit. Clear records of the accounting analysis are essential.
• IT systems and controls over financial reporting. Where the financial reporting process depends heavily on complex IT environments, the reliability of systems and controls can be a KAM. Auditors involve IT specialists and test access and change controls. Management should evidence control operation throughout the period.

The recurring theme across these key audit matters examples is judgement and estimation uncertainty. The more subjective the number, the more likely it is to become a KAM, and the more important contemporaneous, defensible documentation becomes.

How Auditors Identify and Assess Key Audit Matters, Methodology and Materiality

ISA 701 describes a filtering process. Auditors begin with the full population of matters communicated to those charged with governance. From that population, they identify matters that required significant auditor attention, informed by the risk assessment under the broader suite of ISAs, the identification of significant risks, areas of significant management judgement, and the effect of significant events or transactions. From that narrowed set, auditors then determine which matters were of most significance in the audit; those become the key audit matters reported.

Materiality threads through this entire process. A matter is far more likely to rise to KAM status where the amounts involved are material and where the judgement or estimation uncertainty is high. However, KAMs are not purely a function of monetary size, a qualitatively significant matter involving high estimation uncertainty can be a KAM even where the headline number is moderate. Discussions with the audit committee are central: auditors communicate the matters they consider significant, and those discussions shape both the selection and the wording of the eventual disclosure. The process is scalable, so a smaller listed entity with a simpler risk profile may have fewer KAMs than a large, complex group.

Materiality and KAM Selection

For CFOs, understanding the relationship between materiality and KAM selection helps anticipate the auditor’s report. The following comparison clarifies how a “significant risk” differs from a reported key audit matter, a distinction that is frequently misunderstood.

Not every significant risk becomes a KAM, and not every KAM arises from a formally designated significant risk. The two concepts overlap heavily but serve different purposes, one drives audit effort, the other drives public transparency.

CFO & Audit Committee Prep Checklist for Key Audit Matters, Before, During and After Year-End

Preparation is the single most effective lever CFOs have over how key audit matters are reported. Early, organised documentation reduces late adjustments, supports management’s judgements, and gives the audit committee the information it needs to engage meaningfully with the auditor. The checklist below is organised by timeline.

Before Year-End

• Build a risk map of likely KAM areas, revenue, impairment, ECL, significant estimates, related parties, and tax or zakat exposures.
• Document the methodology, assumptions and inputs behind each significant accounting estimate, with contemporaneous support.
• Gather evidence that key controls, particularly over revenue and financial reporting systems, operated throughout the period.
• Prepare board-approved cash flow forecasts underpinning impairment and going concern assessments.
• Maintain a complete related-party register and supporting documentation for connected transactions.
• Discuss anticipated key audit matters with the external auditor in advance to avoid surprises at reporting.

At Year-End

• Agree a communication plan with the auditor covering the timing of KAM discussions and draft wording.
• Schedule audit committee meetings to review the matters the auditor considers significant and the proposed disclosures.
• Ensure board and audit committee minutes record the discussion of significant judgements and estimates.
• Coordinate the key audit matters disclosure with the related financial statement notes so cross-references are accurate.
• Avoid late, unsupported adjustments, which both create and complicate KAMs.

After the Audit

• Review the auditor’s proposed KAM wording for factual accuracy and consistency with the notes.
• Confirm that no KAM language inadvertently implies a deficiency rather than an area of significant judgement.
• Align the timing of the auditor’s report issuance with CMA and Tadawul filing obligations.
• Brief investor relations so that any market communications are consistent with the reported key audit matters.
• Capture lessons learned to streamline next year’s documentation and reduce recurring KAM friction.

Treating this checklist as a live document, updated each reporting cycle, turns key audit matters preparation from a year-end scramble into a controlled, repeatable process.

Responding to Proposed Key Audit Matters, Disclosure Drafting, Negotiation and PR Considerations

When the auditor shares proposed KAM wording, management and the board should evaluate it carefully. The KAM is ultimately the auditor’s communication and reflects the auditor’s professional judgement, so management cannot simply veto a matter. However, management can and should engage constructively on the factual accuracy of the description, the clarity of language, and the cross-references to the financial statement disclosures. Where the KAM highlights an area of significant judgement, management may wish to ensure its own disclosures in the notes are sufficiently robust so that readers can see the full picture.

Disclosure controls matter here. The content of the auditor’s report should be consistent with the company’s own narrative reporting and any market communications. Coordinating the timing of the earnings release, the audit report issuance and the exchange filing avoids inconsistent messaging. From a communications perspective, management should be prepared to explain a KAM to analysts and shareholders in plain terms, framing it accurately as an area of audit focus rather than a problem with the accounts.

When to Escalate to Regulator or Exchange

Escalation to the CMA or Tadawul is rarely necessary in the ordinary course of agreeing key audit matters wording. Disagreement over the description of a KAM is generally resolved through dialogue between management, the audit committee and the auditor. Escalation becomes relevant only in limited circumstances, for example, where there is an unresolved dispute with implications for the opinion, a governance breakdown, or a specific regulatory reporting trigger. Companies should document their engagement with the auditor so that, if questions arise later, there is a clear record of how the KAM was considered and resolved.

Key Audit Matters vs Other Auditor Report Items, Comparison Table

CFOs frequently conflate the different tools an auditor can use in the report. The table below clarifies the distinctions.

The critical takeaway is that key audit matters do not modify the opinion. They coexist with an unqualified opinion and are fundamentally different from an Emphasis of Matter paragraph or a modification.

Practical Red Flags and Mitigation Actions, Quick Reference

Certain conditions reliably increase the likelihood of key audit matters and regulatory interest. CFOs should watch for these and act early.

• Weak or poorly documented estimates. Mitigate by establishing clear methodologies and retaining contemporaneous support for assumptions.
• Late adjustments near period end. Mitigate by closing the books on a disciplined timetable and investigating variances early.
• Complex related-party arrangements. Mitigate by maintaining a complete register and documenting the commercial rationale and pricing.
• Unusual or one-off transactions. Mitigate by preparing a standalone accounting memorandum with the analysis and conclusions.
• Material uncertain tax or zakat positions. Mitigate by documenting the basis for provisions and retaining supporting correspondence.
• Heavy reliance on complex IT systems. Mitigate by evidencing control operation and involving specialists before year-end.

Conclusion and Next Steps

Key audit matters Saudi Arabia reporting is now a front-line compliance and governance issue as oversight of auditor reporting intensifies. The route to a clean, well-understood auditor’s report runs through preparation: mapping likely KAM areas, documenting significant judgements contemporaneously, engaging the audit committee and external auditor early, and coordinating disclosure with CMA and Tadawul timelines. CFOs and audit committee chairs who treat ISA 701 as a year-round discipline rather than a year-end event will navigate the heightened scrutiny with confidence and present key audit matters as evidence of rigorous governance. For further reading, see Top Audit Firms in Saudi Arabia and ESG Assurance Saudi Arabia (2026), and consult the Audit & Assurance practice resources for Saudi Arabia.

Top Audit Firms in Saudi Arabia

Sources

1. International Auditing and Assurance Standards Board (IAASB), ISA 701
2. International Federation of Accountants (IFAC)
3. Capital Market Authority (CMA), Saudi Arabia
4. Saudi Exchange (Tadawul)
5. Saudi Organization for Chartered & Professional Accountants (SOCPA)
6. IFRS Foundation / IASB