Impact of auditor characteristics and Covid-19 Pandemic on KAMs reporting

Abstract

Purpose This paper aims to investigate how auditors’ characteristics affect key audit matters (KAMs) in the new audit report. It also provides an understanding of the effect of the COVID-19 pandemic on different audit reporting decisions and audit quality in specific industries. Design/methodology/approach The paper uses a survey based on actual audit case studies extracted from the management letters of clients in an audit firm with international affiliation to test the proposed hypotheses. Kruskal–Wallis and Mann–Whitney tests are conducted to analyze variance in responses among different groups of auditors regarding their selection of audit report sections required for each audit matter. The Wilcoxon signed rank test analyses difference in the auditors’ responses pre- and post-COVID-19 implications. Findings Most of the developed hypotheses were only partially accepted where industry specialization, professional qualifications of the auditors and the effects of COVID-19 had some effects on the ability of auditors to recognize and disclose KAMs. Auditor position is the most factor that significantly influenced the recognition of KAMs in the new audit report resulting in higher audit quality. This was specially the case with auditors specializing in manufacturing and financial institutions. Originality/value The current research illustrates that during the pandemic, auditors were more effective in recognizing KAMs compared to other audit matters, thus enhancing users’ confidence in both the audit and the financial reporting processes. The results are useful to regulators and auditors as they provide a better understanding of the factors that may impact communicating KAMs in the new audit report under COVID-19.

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

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“…First, some research showed that due to increased business risks and uncertainty, particularly regarding going-concern issues and management misbehavior (Hategan et al , 2022), the number of disclosed CAMs has increased (Ecim et al , 2023; Kaka, 2021). Second, other studies indicate that because the social distancing outbreak imposed limitations on auditors to meet face-to-face with the board of directors, audit committee and management, as well as the gathering of sufficient evidence (Hegazy et al , 2022), therefore, negatively impact audit quality and consequently, the auditor’s ability to identify and disclose CAMs (Albitar et al , 2021). Conducting such studies can inform the profession and regulators about the need to be prepared for unexpected situations similar to COVID-19 and to develop the necessary regulations.…”

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“…Previous studies agree that digitization and digitalization are part of digital transformation (Verhoef et al , 2021; Prakash et al , 2022). Investments in and expectations from technologies have placed pressure on researchers and professionals to find solutions for optimal integration of these technologies into many facets of our lives (Musleh Al-Sartawi et al , 2022; Hegazy et al , 2022). Hence, this Special Issue seeks to open a room for researchers to examine such issues and list propositions for research and practice.…”

“…The paper “ The impact of auditor characteristics and Covid-19 pandemic on KAMs reporting ” by Hegazy et al (2022) investigates how auditors’ characteristics affect Key Audit Matters (KAMs) and audit quality decisions in specific industries before and after the Covid-19 pandemic. The paper uses a survey based on actual audit case studies extracted from the management letters of clients in an audit firm with international affiliation to test the proposed hypotheses.…”