Text similarity, boilerplates and their determinants in key audit matters disclosure

Abstract

Like the European Commission, many regulators and standard setters worldwide have substantially revised the requirements for auditor’s reports on statutory audits of public interest entities. Their objective was to improve the report’s information content and, hence, the transparency of the audit. A significant change was the introduction of a key audit matters (KAM) disclosure which increased the scope, meaningfulness, and individuality of auditor’s reports. However, critics fear that auditors could use similar or standard formulations (i.e., boilerplate reporting) and not really increase the information value of the auditor’s report. Therefore, this study investigates text similarities in KAM disclosure practice in the auditor’s reports of German HDAX companies between 2017 and 2019. The results suggest that auditors often use similar formulations when disclosing a KAM on the same issue at the client level in consecutive years. We further find that the similarity rate is significantly negatively correlated to an audit firm change, and positively correlated to client firms that have a stable financial position measured by a high portion of equity

Mapeando os Fatores Associados à Similaridade dos Principais Assuntos de Auditoria em Empresas Brasileiras Listadas

“…Considering a minimum of 0% and a maximum of 100%, the average for the period was 72.91%. These results are consistent with the findings of Carvalho (2021), Carlé et al (2023), Hsieh et al (2021), and Kend and Nguyen (2020), who also investigated the percentage of KAM similarity.…”

“…Conversely, the lowest similarity was concentrated in the "non-cyclical consumption" and "basic resources" sectors. Differences between economic sectors were observed, aligning with the literature (Carlé et al, 2023;Carvalho, 2021;Ferreira & Morais, 2020;Hsieh et al, 2021). These findings contribute to other studies that evaluated the impact of the economic sector on KAM disclosure.…”

“…0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) ROA it 0.02 (0. The change in auditor had a negative impact on KAM similarity, confirming hypothesis H5 and corroborating the results of Carlé et al (2023). This finding can be related to the effects of the change in auditor on audit procedures.…”

“…Studies on key audit matters (KAM) have focused on a) understanding KAM disclosure and the extent to which these matters tend to be repeated (Hsieh et al, 2021), b) factors associated with KAM similarity (Carlé et al, 2023;Carvalho, 2021), and c) the implications of this similarity on variables such as audit quality (Zeng et al, 2021). However, the results are preliminary and inconclusive (Carvalho, 2021).…”

The determinants of linguistic features in key audit matters: Empirical evidence from Europe

“…Focussing on boilerplate language in a German sample, the study byCarlé et al (2023) finds no time trend between the timeframes 2017/2018 and 2018/2019.3 ISA 701 became effective for audits of financial statements ending on or after 15 December 2016.4 I focus on the literature investigating the determinants of KAM disclosures. For a detailed literature review on the consequences of KAM disclosures, I refer to Minutti-Meza (2021).5 There are multiple studies that quantify linguistic features of KAM dis-…”