Implications of recent reforms to auditor reporting requirements in Australia

Abstract

Purpose This paper aims to address a topical and controversial issue, namely, the degree of conformity with the new auditor reporting requirements in Australia and the extent of variations in the reporting of key audit matters (KAMs) by Australian firms. Design/methodology/approach This paper compares the 64 elements identified in the applicable standards with the auditor’s report from the sampled companies to determine the degree to which the top 200 firms listed on the Australian Stock Exchange are complying with the requirements of the new audit report. This paper investigates KAM disclosures within and across industries. Findings The results indicate that there is a high degree of conformity with the new reporting framework, yet significant variations in the contents of the report, particularly in KAM disclosures. This paper observes that the number of KAMs and their extent of disclosure generally varies within industries. The types of KAMs presented vary both within and across industries. This paper further provides evidence that auditors have a tendency of not disclosing negative KAMs and tend to avoid negative wordings when describing KAMs. This paper also finds that there are significant differences in the placement of various types of KAMs in the audit report. Practical implications These findings have important policy implications for the standard-setters, regulators, auditors and users of financial reports on the adequacy of the new auditor reporting framework. Originality/value This study is one of the first to examine the degree of conformity with the new audit reporting model in Australia.

Mapping the state of expanded audit reporting: a bibliometric view

“…Australia, The Netherlands, Egypt, Oman and Jordan) and explored its various aspects, including its acceptance rate from the stockholders’ (e.g. auditors and managers) points of view (Rahaman and Chand, 2022; Kend and Nguyen, 2020; Woudenberg et al , 2021; Hegazy and Kamareldawla, 2021; Baatwah, 2022; Abdullatif and Al‐Rahahleh, 2020).…”

Insight of ISA 701: Key Audit Matter Disclosure in Extended Audit Report?

“…Users of financial statements might perceive the auditor's disclosure of KAMs as inconsistent and biased, especially when compared with the issuance of a clean audit report on the same financial statements (Coram & Wang, 2020). This inconsistency can impact users' investment decisions, leading to a loss of confidence in the auditor's reports and fostering the perception of conflicting opinions (Rahaman & Chand, 2022). Additionally, an increase in the auditor-disclosed KAM poses a potential threat to financial statement users, diverting their attention from other critical sections of the auditor's reports (Li et al, 2019;Sirois et al, 2018).…”

Consideration of Significant Audit Matters: An Evaluation

“…Later, it will be followed by a segment of the effects of disclosure (Li, Hay, & Lau, 2019;Segal, 2019;Velte, 2020;Kitiwong & Sarapaivanich, 2020;Rautiainen, Jani, & Kati, 2021). In the last segment, this paper will discuss the KAM's reporting mechanism (Rahaman & Chand, 2021;Mihret, Kansal, Muttakin, & Rana, 2022;Wuttichindanon & Issarawornrawanich, 2020).…”

“…However, the requirement for the KAM does not affect the Big 4 companies, and it is just one step extra in reporting the audit procedures (Nguyen & Kend, 2021). Another study found vast differences in the reporting style between new auditor reports and experience auditors (Rahaman & Chand, 2021). Another study further explained that the experience auditors improved the reporting style from year to year (Nguyen & Kend, 2021).…”