Search results

This study aims to examine the setting of International Standards on Auditing (ISA) 701 on disclosing key audit matters (KAMs) to explore the role of standard setting in maintaining or reconstituting the relationship of the auditing profession with preparers and users of financial reports.

This study draws on concepts from the sociology of the professions literature and the regulatory space metaphor. Data comprises comment letters and other documents pertaining to the setting of ISA 701.

The study shows that the KAM reporting requirement is part of the ongoing re-calibration of the regulatory arrangements governing auditing, which started in the early 2000s. This study interprets standard setting as a site for negotiating the relationships between linked ecologies in the audit regulatory space, namely, the auditing profession, preparers of financial statements and users of audited reports. This study identifies three processes involved in setting ISA 701, namely, reconstitution of the rules governing auditors’ reports as a link between the three ecologies, preserving boundaries between the auditing profession and preparers and negotiation aimed at balancing competing interests of the interrelated ecologies.

The study offers insights into the role of regulatory rule setting as a central medium through which the adaptive relationship of the profession with its environment is negotiated.

This study aims to examine the determinants of disclosing repetitive year-to-year key audit matters (KAMs) content by auditors for a client and whether repetitive KAMs content is indicative of lower audit effort.

The authors use a sample of publicly listed firms from New Zealand between 2016 and 2020. Multivariate regression models are used to test the determinants of the extent of repetitive content in the KAMs section of the audit report. The authors compare the KAMs disclosed in the current period to those disclosed in prior period(s) to determine the level of recurring items and repetitive textual content.

The authors find evidence of repetitive KAMs content being disclosed at the client level since the reporting requirement was introduced. In multivariate analyses, the authors find that client business risk and auditor reputation are negatively associated with auditors’ reporting of repetitive KAMs. Furthermore, the authors find that auditors exert lower effort on audits for which they report a higher level of repetitive content in KAMs.

The study provides novel findings that contribute to the literature on auditors’ voluntary reporting of KAMs and provide important practical implications for investors and regulators.

Key audit matters (KAM) and their impact on the auditor is a relatively understudied area. The purpose of this study is to analyse whether auditors perceive that the recent requirement for auditors of listed companies to report KAMs has enhanced the transparency of audit reports or not, what additional risks they now face, how the risk is being managed and its impact on the relationship with their clients.

The paper uses an interpretive approach for detailed interviews with some of South Africa’s leading audit experts to highlight their perspective of the impact of KAM on audit reporting and the audit environment.

The experts have various perceptions of what makes a matter “key”. These vary from materiality, to subjectivity and difficulty, as well as incorporating a time-based consideration. Concerns identified include a significant increase in cost and an increase in potential liability, triggering the need for thorough internal risk management policies. The audit experts conclude that KAM has ultimately failed to achieve its goal of greater transparency, with clients virtually ignoring KAM reports.

The research relies on a relatively small sample of subject experts and may not provide a complete account of the view of all audit professionals and KAM reports issued. It analyses the impact of KAM from the preparers’ perspective.

This study contributes to the research conducted in this topical area. Although there has been research on KAM focusing on pre-implementation consequences, there is virtually no formal academic research on the impact KAM has had on audit partners and firms in South Africa post implementation. It may also serve as a basis for the IAASB to consider going forward.

This study aims to investigate how external auditors properly classify the requirements of ISA 701 for key audit matters (KAM) compared with an emphasis of matter or other matters (EOM) in ISA 706 and going concern (GC) in ISAs 706 and 570. Such investigation is important to assess whether the explanatory matters included in ISAs 701, 706 and 570 are appropriate for external auditors so they can properly classify identified audit matters as either KAM, EOM or GC matters and considering the relationship among them.

The research used questionnaires sent to a sample of external auditors in five audit firms with international affiliations including two of the Big 4 audit firms. The Z-test for two proportions is conducted to assess whether external auditors were confused when interpreting the explanatory matters included in the ISAs.

The research suggests that the current ISA 701 explanations may not adequately help some auditors in their aim of properly identifying all KAM from among the different matters they reach during their audit. When classifying EOM and GC, most of the external auditors misclassified them as KAM.

This is a timely study. The results have implications for standard setters and regulators through revising the explanations included in the different audit reporting standards including ISA 701 and considering the relationships among them.

According to the authors’ knowledge, this study is considered among the first that surveyed the appropriateness of the explanations included in ISAs for KAM, EOM, GC and how auditors perceive such explanations when forming their opinion about their clients’ financial statements.

Key audit matters (KAMs) in International Standard for Auditing, 701 seek to enhance the value of the auditor’s report by increasing the transparency of how the audit was performed. The purpose of this study is to investigate how professional auditors themselves perceive the impact of KAMs on audit quality and audit effectiveness.

Statistical analyses of an electronic survey of certified public auditors (CPAs) in Finland.

Regarding the perceptions of KAMs, the authors found two dominant views on auditing: quality and efficiency. In general, the respondents did not consider that KAMs improve audit quality. However, auditors focusing on efficiency considered that KAMs make the audit process more fluent. Further, the use of KAMs may facilitate audit effectiveness and cooperation between auditors and managers. The authors also found three factors related to the KAMs processes and auditing work: effectiveness, risks and workload.

Auditors may use KAMs to provide focus in their work. This facilitates balancing between the demands for added value while keeping the workload and audit risks at a tolerable level.

This study contributes to the emerging literature on KAMs as well as to the literature examining practitioner views of changes in auditing regulation. It is, as far as we know, the first study to report survey evidence on how CPAs themselves perceive KAMs and the effects of KAMs on audit work in an European Union country context.

This chapter focuses on the international aspects of auditing in the context of the airline industry for the year 2018. This chapter finds that International Standards on Auditing have been widely adopted in the global context. This chapter also analyses several observations related to the composition of audit firms (Big 4 vs. non-Big 4), types of audit opinions, emphasis of matter, other matters, material uncertainty related to going-concern, and types of auditors (single or joint auditor). This chapter covers the frequency of the four elements of describing key audit matters (KAM) in the audit reports in the global and auditor context as well as the KAMs observed in the airline industry and classifies them as industry-specific KAMs and entity-specific KAMs. In addition, this chapter analyses the requirements of the expanded audit report of the UK which includes the declaration of materiality threshold and scope of the audit in connection with the materiality and KAMs considering UK and non-UK airlines.

This study aims to explore the auditors’ responses to the COVID-19 pandemic in Egypt, with a focus on how their demographic characteristics – specifically gender, work experience and audit firm size – affect their ability to identify key audit matters (KAMs).

The study used exploratory factor analysis to develop an index for evaluating auditors’ proficiency in distinguishing KAMs from non-KAMs, followed by multivariate regression analysis to analyze the impact of auditors’ demographics on this ability.

The study’s findings are significant as they highlight the influence of auditors’ gender and work experience on their capability to correctly classify KAMs. However, the size of the audit firm showed no significant effect on the auditors’ decision-making efficacy in identifying KAMs.

While the study illuminates critical aspects of audit judgment during unprecedented times, it acknowledges limitations, including its geographical focus on Egypt and reliance on self-reported data. The implications stress the need for audit firms and regulators to consider auditors’ demographic characteristics when formulating policies to enhance audit quality and reliability during crises.

This research breaks new ground in the auditing literature by shedding light on the distinct role of auditor demographics in shaping audit opinion during crises. It is one of the pioneering studies to quantitatively assess the impact of auditors’ gender, experience and firm size on KAM identification in a global health crisis. It provides a unique perspective on audit practices in emerging economies.

This paper aims to ask whether the implementation of the expanded auditor’s report, which included a requirement to disclose key audit matters (KAMs) in Thailand since 2016, has improved audit quality.

To answer this question, the authors examined audit quality two years before and two years after its adoption by analysing 1,519 firm-year observations obtained from 312 companies. The authors applied logistic regression analyses to the firm-year observations.

The authors found some weak evidence that KAMs disclosure improved audit quality because of auditors putting more effort into their audits and audits being performed thoroughly after the implementation of KAMs. Interestingly, the number of disclosed KAMs and the most common types of disclosed KAMs are not associated with audit quality. Only disclosed KAMs related to acquisitions are more informative because the presence of this type of disclosed KAMs signals the greater likelihood of financial restatements being made in a later year.

Unlike previous studies on the impact of KAMs disclosure on audit quality, which used discretionary accruals as proxy for audit quality, this study used the occurrence of financial restatements.

Using China’s key audit matters (KAMs) data, this study aims to examine whether negative press coverage alleviates boilerplate KAMs.

This study uses Levenshtein edit distance (LVD) to calculate the horizontal boilerplate of KAMs and investigates how boilerplate changes under different levels of the perceived legal risk.

The findings indicate that auditors of firms exposed to substantial negative press coverage will reduce the boilerplate of KAMs. This association is more significant for auditing firms with lower market share and client firms with higher financial distress. Additionally, the authors find that negative press coverage is more likely to alleviate the boilerplate disclosure of KAMs related to managers’ subjective estimation and material transactions and events. Furthermore, the association between negative press coverage and boilerplate KAMs varies with the source of negative news.

The findings suggest that upon exposure to negative press coverage, reducing the boilerplate of KAMs has a disclaimer effect for auditors.

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.