Audit committee characteristics and Key Audit Matters (KAMs) disclosures

Abstract

In this study we have examined if audit committee characteristics in terms of audit committee members’ gender, audit committee members’ accounting and finance backgrounds, audit committee members’ industry expertise and audit committee members’ legal expertise affect the number and content characteristics of KAMs reported. We examine the issue based on a sample of 1112 firm‐year‐observations and 3013 KAMs spanning for the period 2017–2020. We use multivariate regression models to examine the research questions. We also use a variety of other specifications for robustness test. Our findings suggest that female audit committee members reduce the number and lengths of KAMs. Our results further suggest that auditors disclose more specific information, identify more firm specific KAMs and produce more readable KAMs in the presence of female members in the audit committee. We find similar results for audit committee members’ accounting and finance backgrounds and audit committee members’ industry expertise. However, audit committee members’ legal expertise reduces disclosure specificity, readability, and lengths of KAMs. Our results suggest that the audit committee strength/diversity affects the number and content characteristics of KAMs disclosure. This study makes a unique contribution by showing that audit committee characteristics affect the content specificity and idiosyncrasy of KAMs disclosed by external auditors. Moreover, this study supports the previous findings in the UK context that audit committee characteristics affect the number and readability of KAMs. Given the global adoption of ISA 701, evidence from current study will add to the global effort to understand the determinants of KAMs reporting practices. For regulators this study contributes by showing that audit committee members’ diversity affects the content characters of KAM.

The Informative Value of Key Audit Matters in the Audit Report: Understanding the Impact of the Audit Firm and KAM Type

“…Moreover, the auditor may use less clear language in describing the KAM in order to avoid conflict with management, which might prefer not to disclose sensitive information too clearly (Coffee 2019). Along this line, Bepari (2023) find that auditors produce more readable KAMs in the presence of female audit committee members.…”

“…The question of audit report readability has been examined in earlier research (Fakhfakh 2015;Carver and Trinkle 2017;Smith 2019;Zeng et al 2021;Seeback and Kaya 2022;Ong et al 2022;Bepari 2023). Several studies have examined the effectiveness of the expanded audit report, providing evidence that audit report quality has improved in the post-ISA 700 period using KAM readability as a proxy for audit quality.…”

“…2021; Seeback and Kaya 2022; Ong et al. 2022; Bepari 2023). Several studies have examined the effectiveness of the expanded audit report, providing evidence that audit report quality has improved in the post‐ISA 700 period using KAM readability as a proxy for audit quality.…”

It is a balancing act: understanding the key audit matters disclosure in the context of a developing country

“…Bepari et al (2022), in the Australian context, document that in addition to the client firm and audit firm characteristics, auditor characteristics such as audit partner’s gender, education and experience also affect the number and types of KAMs disclosures. Velte (2020) and Bepari (2023) document that AC members’ accounting and finance background, AC members’ industry expertise and female members in the AC affect the number, readability and content specificity of KAMs disclosures. Moreover, auditors switch and audit firms switch also affect KAM disclosures (Duboisee de Ricquebourg and Maroun, 2022).…”

أثر التنوع الجنسي لأعضاء لجنة المراجعة على العلاقة بين نرجسية مراقب الحسابات وقابلية تقريره عن مراجعة القوائم المالية السنوية للقراءة: دليل من الشركات المقيدة بالبورصة المصرية (باللغة الانجليزية)

“…Moreover, research on gender diversity within audit committee has taken various paths in an attempt to understand its impact on the effectiveness of tasks assigned to them, including the quality of financial reports and the readability of the audit report. Bepari et al (2023) investigated the impact of female representation in the audit committee on the readability of the audit report on the annual financial statements. They found a direct association between the representation of females in the audit committee and the readability of the audit report.…”