The Analysis of the Relationship between Key Audit Matters (KAM) and Firm Characteristics: The Case of Turkey

Genç, Elif Güneren; Erdem, Başak

doi:10.5195/emaj.2021.219

Cited by 4 publications

(3 citation statements)

References 15 publications

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“…The results also suggest that, the coefficient of firm size is positive and significant, with coefficients 0.00400, 0.00152 and 0.00365 in all models at the confidence with an interval of 99%. This means that the bigger the firm, the more risk information will be disclosed (Genç et al, 2021). These results also aligned with the previous literature and the agency theory .…”

Section: Corporate Risk Disclosuresupporting

confidence: 90%

Corporate risk disclosure and key audit matters: the egocentric theory

Elmarzouky

Hussainey

Abdelfattah

et al. 2022

IJAIM

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Purpose This paper aims to provide unique interdisciplinary research evidence between the risk information disclosed by auditors and the risk information disclosed by corporate managers. In particular, it investigates the association between the level of risk information disclosed by auditors (key audit matters [KAMs]) and the level of corporate narrative risk disclosure. Design/methodology/approach The study sample consists of the UK FTSE all-share non-financial firms across six financial years. The authors use a computer-aided textual analysis, and the authors use a bag of words to score the sample annual reports. Findings The results suggest that KAMs and corporate narrative risk disclosure levels vary across the industries. The authors found a significant positive association between the risk information disclosed by auditors and the risk information disclosed by corporate managers. Also, the authors found that FTSE 100 firms exhibit higher significance between the ongoing concern and the level of narrative risk disclosure. Practical implications The study approach helps assess the level of management risk reporting behaviour due to the new auditor risk reporting standards. This helps to emphasise how auditors and companies engage and communicate risk-related information to stakeholders. Standard setters should suggest a more detailed reporting framework to protect the shareholders. The unique findings are incredibly beneficial to the regulators, standard setters, investors, creditors, suppliers, customers, decision makers and academics. Originality/value This paper provides a shred of extraordinary evidence of the impact of auditor risk reporting and management risk reporting. To the best of the authors’ knowledge, no study has yet investigated the corporate narrative disclosure after the new audit standards ISA 700 and ISA 701.

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Section: Corporate Risk Disclosuresupporting

confidence: 90%

Corporate risk disclosure and key audit matters: the egocentric theory

Elmarzouky

Hussainey

Abdelfattah

et al. 2022

IJAIM

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“…Their results suggests that KAM reporting does convey signals to the market while it improves the overall audit quality. Genç and Erdem (2021) focus on the impact of the inclusion of KAM separate section in the auditor's report in an emerging markets context (Turkey). They detect firm level characteristics which have a significant impact on KAM disclosures.…”

Section: Empirical Backgroundmentioning

confidence: 99%

“…Additionally, this research looks at the unique setting of CAMs in the United States. In contrast, prior research mostly looked at RMMs in the UK, JOAs in France, and KAMs in other countries where the IAASB is active or in emerging markets (Boonyanet & Promsen, 2018;Feng, Wen, Ke, & He, 2021;Genç & Erdem, 2021) (Zeng, Zhang, Zhang, & Zhang, 2021;Zhi & Kang, 2021). The PCAOB mentioned that studies from different countries might not be generalizable to the US context because of differences in baseline conditions (Public Company Accounting Oversight Board, 2017).…”

Section: Introductionmentioning

confidence: 99%

The Influence of Critical Audit Matters in the US on the Informativeness of Investors

Spaargaren

Sikalidis

Γεωργακόπουλος

et al. 2022

Sci. Ann. Econ. Bus.

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In 2017, the PCAOB announced its new audit standard, AS 3101. One requirement is reporting critical audit matters (CAMs), starting June 30, 2019, for large accelerated filers. Using US data of CAM, we investigate whether the reporting of CAMs is informative for investors using a difference-in-differences approach and we use as proxies for investors’ informativeness, absolute abnormal returns and abnormal trading volume. Our motivation is to assess the relevance and the effectiveness of a new regulation aiming to improve audit quality. Overall, our findings provide some indications that the first-time implementation of CAMs might lead to investors avoiding those companies presumably because of uncertainty about the information being released. We also investigate the content of the CAM paragraph and do not find that the number, categories, or firm-specific/industry-common CAMs are value-relevant for investors. The results of this study provide insight into the new US auditor standard and the value-relevance of CAMs for investors. We suggest that standard setters should aim to improve the auditor report to make it more informational. Overall, our paper provides some evidence on the implementation and communicative value of the new CAM reporting, suggesting that CAMs are not informative for investors. We argue that this is the case potentially due to the additional information from CAMs which leads to complex information or information overload making investors less reluctant to invest on the companies with a significant number of CAMs reported.

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