We investigate the effect of key audit matters (KAM) in the auditor’s report as required by the new ISA 701. We consider investment professionals and non-professional investors in our experiments, ...

https://findresearcher.sdu.dk:8443/ws/files/172895306/Koehler_Ratzinger_Sakel_Theis_2020_accepted_manuscript.pdf

The Effects of Key Audit Matters on the Auditor’s Report’s Communicative Value: Experimental Evidence from Investment Professionals and Non-professional Investors

Applying a new audit regulation: Reporting Key Audit Matters in Jordan

In Southeast Asia, auditors play a crucial role in the quality of financial reports. With the introduction of a new format of auditors’ report that requires disclosure of key audit matters (KAM), the disclosure practice of auditors is, thus, of great interest. Specifically, this study aims to investigate the factors that auditors take into consideration when issuing KAMs.,The research design is quantitative, with a focus on the number of KAM disclosures issued by auditors. As existing studies rely on the number of KAM disclosures in the analysis, this current research, thus, uses the quantity of KAM disclosures for comparison purposes. The analysis relies on secondary data and multiple regression analysis is used to establish the association between the number of KAM disclosures and three groups of determining factors, namely, auditor characteristics, corporate governance mechanisms and firm characteristics.,The significant determining factors of KAM disclosure include auditor’s litigation risk, firm complexity, profitability and industry type. Firms using a Big 4 audit firm, firms with many subsidiaries and firms in the technology, property and construction and finance industries have higher numbers of KAMs, while highly profitable firms issue lower numbers of KAMs. As for corporate governance mechanisms, the number of KAMs is significantly positively correlated with the number of independent directors (p < 0.10).,This research includes key corporate governance parties in the examination, including external auditors, independent directors and audit committees. The finding affirms the influence of Big 4 on KAM disclosure in Southeast Asia, while their roles are not significant in Western samples. The result also unearths the monitoring role of independent directors in KAM disclosure. The role of the audit committee in KAM disclosure is insignificant in Thai samples, while the committee role is statistically significant in the Western samples. Variations in the findings between this study and previous research could be attributed to differences in institutional settings between both regions.

Determining factors of key audit matter disclosure in Thailand

The purpose of this study is to understand how the new reforms related to key audit matters (KAM) disclosures in Australia may have impacted audit quality by eliciting the perceptions of key stakeholders in the audit and assurance services market.,The study uses a qualitative approach and New Institutional Sociology (NIS) to explain how auditors have responded to the KAM reforms. Interviews were conducted with 20 individuals representing identified groups of stakeholders in the market for audit and assurance services in Australia.,The study finds there is little consensus between some stakeholder groups on whether the KAM reforms may have improved audit quality, based on the perceptions shared. The findings conveyed that the auditors and regulators, standard setters acknowledge that KAM disclosures are either costly and/or time-consuming to implement. The Big Four auditors indicate these reforms led to changes mainly around internal consultations and independent reviews, whereas the non-Big Four auditors highlighted increased interactions with audit clients.,This is one of the first studies to examine the perceived post-implementation impacts on audit quality of the KAM reforms (ISA 701) after the initial two years of implementation and how auditors have responded, explored through the lens of institutional logic.

The perceived impact of the KAM reforms on audit reports, audit quality and auditor work practices: stakeholders’ perspectives

From the mixed results of previous related literatures, the study’s objective mainly aimed to test the possible relationship between Key Audit Matters (KAM) reporting and common share price of listed companies from the alternative capital market in Thailand namely the Market of Alternative Investment (MAI). Using 127 out of 160 MAI firms, 381 corporate annual reports during 2016 to 2018 were used as the samples. KAM reporting and corporate characteristics were collected from annual reports, while the MAI’s website namely SETSMART was used to collect corporate common share price of the samples. Descriptive analysis, correlation matrix and panel data analysis were used to analyze the data. As the results, the study found a significantly negative relationship between KAM reporting and common share price. Moreover, industry type and profitability had positively correlated with common share price. Main contribution of this study was that KAM reporting can provide accurate information value of communication compared with the traditional audit reporting to corporate investors for decision making as well as reducing information asymmetry.

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KAM Reporting and Common Share Price of Listed Companies in The Market of Alternative Investment from Thailand

This article presents a literature review of 39 empirical studies on key audit matter (KAM) disclosure in audit reports. The study involves a structured literature review on KAM disclosure based on the reactions of stakeholders. The limitations of former studies and useful recommendations for research are stressed. Five major streams of empirical research that analyse the impact of KAM disclosure on stakeholders’ reactions are focused: (1) shareholders (e.g. investors’ perceptions of auditors’ responsibility and litigation, value relevance and investors’ decisions); (2) debtholders (e.g. loan contracting terms); (3) external auditors (e.g. audit processes and audit fees); (4) boards of directors (e.g. earnings management); and (5) other stakeholders (e.g. informational value for suppliers and customers). We stress that most of the included studies use experimental or archival data and analyse the impact of KAM disclosure on investor reactions in a US-American setting. As the international standard setters assume a positive impact of KAM on stakeholder reactions, mixed empirical results are found. Although there are some indications of decreased earnings management behaviour, most studies find no significant changes in auditor behaviour. Furthermore, there are many insignificant results with regard to shareholders’ reaction in line with our stakeholder and behavioural agency framework. Our literature review is especially useful for management decisions because firm reputation may be positively or negatively influenced by KAM regulations.

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Jakob Issa

Papers

The impact of key audit matter (KAM) disclosure in audit reports on stakeholders’ reactions: a literature review