A client has a significant but routine revenue stream and a smaller, highly complex revenue stream from new, bespoke contracts. Management's estimates for the bespoke contracts are subjective. Which of these, if any, is more likely to be a Key Audit Matter (KAM) and what factors would drive your decision?

The smaller, highly complex revenue stream from bespoke contracts is far more likely to be a Key Audit Matter. While the routine revenue stream might be significant in value, its routine nature implies lower inherent risk and less auditor judgment. The bespoke contracts, however, involve higher inherent risk due to their novelty, complexity, and the significant subjectivity in management's estimates, which often require extensive auditor judgment. Factors driving this decision include the significance of the risk of material misstatement, the complexity and subjectivity of the accounting, and the extent of auditor effort required. KAMs highlight areas that required significant auditor attention, which would certainly apply to these new, complex estimates.