What matters in disclosures of key audit matters: Evidence from Europe

Pinto, Inês; Morais, Ana Isabel

doi:10.1111/jifm.12095

Cited by 112 publications

(153 citation statements)

References 64 publications

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“…Thus, H 2 is rejected. As explained by Pinto and Morais (2019), this result can be explained by the fact that the auditor's decision to disclose a KAM may be a choice between maintaining its reputation and maintaining a certain level of return. DeAngelo (1981) indicates that auditors are more likely to question their independence in relation to more important clients.…”

Section: Results Analysismentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

“…Similar to Pinto and Morais (2019), this article uses the theory of Hogarth (1980) regarding the assimilation of information in the judgement and decision-making process to identify the factors that influence the number of KAMs that auditors disclose. As stated by Pinto and Morais (2019), in the KAM disclosure process, auditors can use avoidance or confrontation. The use of avoidance means that the auditor will not disclose a KAM or will delay its disclosure, and avoidance is expected to occur when the auditors consider there to be less responsibility associated with the effects of not disclosing a KAM than disclosing it.…”

Section: Introductionmentioning

confidence: 99%

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Analysis of the relationship between company characteristics and key audit matters disclosed

Ferreira

Morais

2020

Rev. contab. finanç.

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The general objective of this study is to analyze whether the particularities of audited companies influence the volume of key audit matters (KAMs). Its specific objectives are to identify the number of KAMs disclosed by Brazilian companies and analyze the main factors associated with their disclosure. The paper aims to contribute to an area of investigation still lacking in studies that analyze the factors affecting KAM disclosure, which makes audit reports more individualized. The study contributes to understanding the main auditing issues in Brazilian companies that auditors consider relevant, by providing evidence on factors associated with their disclosure. This research is relevant for agencies that issue auditing standards and for financial information users. For issuers of auditing standards, the study is relevant because it identifies the factors associated with KAM disclosure, enabling it to be confirmed that the new audit report model has contributed to its destandardization. For financial information users, the study demonstrates that KAM disclosure varies from company to company, thus contributing to greater transparency of the audit report. Data were collected from the Audit Reports and Consolidated Financial Statements of the 447 Brazilian companies listed on the São Paulo Securities, Commodities, and Futures Exchange (BM&FBovespa), on December 31st of 2016, and an ordinary least squares (OLS) regression was applied to the defined model. The results show a positive relationship between the number of KAMs disclosed and both the auditor being a Big 4 and the complexity of the audited company. The auditor’s fees and auditor’s opinion being modified show a negative relationship with the number of KAMs. The article is relevant for companies, auditors, and regulatory and supervisory bodies as it identifies company characteristics that influence KAM disclosure and are determinants for the non-standardization of the auditor’s report.

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Section: Results Analysismentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Analysis of the relationship between company characteristics and key audit matters disclosed

Ferreira

Morais

2020

Rev. contab. finanç.

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“…Firmrelated variables include firm size (SIZE), firm risk (RISK), return on assets (ROA), quick asset ratio (QUICK), ratio of debt to total assets (DEBT), presence of a net loss in the current year (LOSS), and complexity (SEGMENTS). Extant research deems larger, leveraged, and loss-making firms more incentivized to engage in more aggressive financial reporting and to likely have more KAMs (Pinto and Morais 2019;Sierra-Garcia et al 2019). Firm risk (RISK) proxies for the firm's operating and business risk environment; number of business segments (SEGMENTS) proxies for the firm's operating complexity; and discretionary accruals (ACC RUA LS) proxy for firm's earning management practices.…”

Section: Research Model Specification For H1mentioning

confidence: 99%

Female Audit Partners and Extended Audit Reporting: UK Evidence

2020

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This study investigates whether audit partner gender is associated with the extent of auditor disclosure and the communication style regarding risks of material misstatements that are classified as key audit matters (KAMs). Using a sample of UK firms during the 2013–2017 period, our results suggest that female audit partners are more likely than male audit partners to disclose more KAMs with more details after controlling for both client and audit firm attributes. Furthermore, female audit partners are found to use a less optimistic tone and provide less readable audit reports, compared to their male counterparts, suggesting that behavioural variances between female and male audit partners may have significant implications on their writing style. Therefore, this study offers new insights on the role of audit partner gender in extended audit reporting. Our findings have important implications for audit firms, investors, policymakers and governments in relation to the development, implementation and enforcement of gender diversity.

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“…Meanwhile, Pinto and Morais (2019) found that a higher number of business segments (complexity) and more precise accounting standards lead to the disclosure of a higher number of KAMs. They also found that a positive association exists between the audit fee and the number of KAMs disclosed.…”

Section: Literature Reviewmentioning

confidence: 99%

Key Audit Matters for Production-To-Order Industry and Conservatism

Kim

Park

2020

IJFS

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In this study, the effects of key audit matters (KAMs), one of the measures recently introduced to improve accounting transparency in the production-to-order industry in terms of corporate sustainability, are examined. After the introduction of KAMs, auditors should publicly disclose key audit matters that had been internally judged in the past. In cases where these are missing or misunderstood, the range of the auditor’s liability may increase. Thus, from the viewpoint of the auditor, the description of KAMs can be recognized as the disclosure of internal judgments and an increase in the risk of litigation. It is judged that, to this end, auditors will perform their auditing work more conservatively in cases where they should describe KAMs. The results of analysis of companies to which KAMs are applied indicate that auditors carried out audits more conservatively for such companies. As such, the result can be interpreted as indicating that, due to the introduction of KAMs, auditors evaluate their risk highly and carry out audits more conservatively in order to reduce the risk. This study is meaningful in that it empirically analyzes the effects of the introduction of the recently implemented KAMs. In addition, this study provides implications for enterprises that prepare financial statements, supervisory institutions that conduct supervision, auditors, and capital market participants, as it presents the finding that, with the introduction of KAMs, auditors perform their work with more conservative perspectives. In addition, the findings of this study provide a basis for future studies on KAMs.

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What matters in disclosures of key audit matters: Evidence from Europe

Cited by 112 publications

References 64 publications

Analysis of the relationship between company characteristics and key audit matters disclosed

Analysis of the relationship between company characteristics and key audit matters disclosed

Female Audit Partners and Extended Audit Reporting: UK Evidence

Key Audit Matters for Production-To-Order Industry and Conservatism

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