Key Audit Matters: Influences and Relevance for Stakeholders A review of the academic literature
Keywords:
Audit Report, Key Audit Matters, Stakeholders, ISA 701Abstract
Following the financial crisis, standard-setters proposed multiple methods to improve the auditor’s report quality in order to also increase the financial stability. Thus, the audit report was expanded to include an additional section for the disclosure of the Key Audit Matters. The paper aims to provide a review of 24 academic research papers by assessing three streams of information in respect to the perception of the stakeholders regarding KAMs communication. The paper’s findings reveal that there are still debated opinions in terms of KAMs utility. The first set of results showed that due to this expansion of the auditor’s report an increase in the quality of the financial reporting was noted and the user’s perceived reliability was improved, resulting also in a decrease of the expectation gap. The second stream of research papers analysed revealed that the audit fee increased and so did the auditor’s and implicitly the litigation risk and despite the purpose of ISA 701, the transparency level did not increase. Finally, the last set of papers addressed neutral opinions, showing that there is still no sufficient market reaction to assess the utility of KAMs.
References
Bedard, J., Gonthier-Besacier, N. & Schatt, A., 2019. Consequences of Expanded Audit Reports: Evidence from the Justifications of Assessments in France. Auditing-A Journal of Practice & Theory, 38(3), pp. 23-45.
Boolaky, P. K. & Quick, R., 2016. Bank Directors' Perceptions of Expanded Auditor's Reports. International Journal of Auditing, 20(2), pp. 158-174.
Christofferson, E. & Gronberg, K., 2018. Informativeness of Key Audit Matter (KAM) Disclosures – An exploratory study of ISA 701 in Sweden, s.l.: University of Gothenburg, School of Business, Economics and Law.
Church, B. K., Davis, S. M. & McCracken, S. A., 2008. The Auditor’s Reporting Model:A Literature Overview and Research Synthesis. Accounting Horizons, 22(1), p. 69–90.
Coram, P. J. & Wang, L., 2020. The Effect of Disclosing Key Audit Matters and Accounting Standard Precision on the Audit Expectation Gap. International Journal ff Auditing, 25(2), pp. 270-282.
Cordos, G.-S. & Fulop, M. T., 2014. A Framework for Understanding and Researching Audit Changes: Key Audit Matters. s.l., Proceedings of The 9th International Conference Accounting And Management Information Systems (Amis 2014).
Daugherty, B. E., Dickins, D., Pitman, M. K. & Tervo, W. A., 2020. The process of identifying and reporting CAMs: early evidence. International Journal of Disclosure And Governance, 18(1), pp. 16-23.
Filipovic, I., Bartulovic, M. & Susak, T., 2019. Key Audit Matters: New Informational Value of Auditor's Report. S.L., Josip Juraj Strossmayer Univ Osijek.
Gold, A., Heilmann, M., Pott, C. & Rematzki, J., 2020. Do key audit matters impact financial reporting behavior?. International Journal Of Auditing, 24(2), pp. 232-244.
Gray, L. G., Turner, L. J., Coram, J. P. & Mock, J. T., 2011. Perceptions and Misperceptions Regarding the Unqualified Auditor's Report by Financial Statement Preparers, Users, and Auditors. Accounting Horizons, 25(4), pp. 659-684.
Guiral-Contreras, A., Gonzalo-Angulo, J. & Rodgers, W., 2007. Information content and recency effect of the audit report in loan rating decisions. Accounting and Finance, 47(2), pp. 285-304.
Hoang, H. & Phang, S.-Y., 2020. How Does Combined Assurance Affect the Reliability of Integrated Reports and Investors' Judgments?. European Accounting Review, 30(1), pp. 175-195.
IAASB, 2011. Enhancing the value of auditor reporting: Exploring options for change, s.l.: s.n.
IAASB, 2013. Reporting on audited financial statements: Proposed new and revised International Standards on Auditing (Exposure Draft), s.l.: s.n.
IAASB, 2015a. ) International Standard on Auditing (ISA) 701 Communicating Key Audit Matters in the Independent Auditor’s Report, s.l.: s.n.
IAASB, 2016. International Standard on Auditing 701 Communicating Key Audit Matters in the Independent Auditor’s Report. s.l.:s.n.
In, C.-y., Kim, T. & Park, S., 2020. Key Audit Matters for Production-To-Order Industry and Conservatism. International Journal Of Financial Studies, 8(1), pp. 1-18.
Iwanowicz, T. & Iwanowicz, B., 2019. ISA 701 and Materiality Disclosure as Methods to Minimize the Audit Expectation Gap. Journal of Risk And Financial Management, 12(4), pp. 1-20.
Jermakovicz, E. K., Epstein, B. J. & Ramamoorti, S., 2018. CAM versus KAM – A Distinction without a difference?. The CPA Journal, pp. 34-40.
Kitiwong, W. & Sarapaivanich, N., 2020. Consequences of the implementation of expanded audit reports with key audit matters (KAMs) on audit quality. Managerial Auditing Journal, 35(8), pp. 1095-1119.
Knechel, W., Mao, J., Baolei, Q. & Zhuang, Z., 2016. Is There a Brain Drain in Auditing? The Determinants and Consequences of Auditors Leaving Public Accounting. SSRN Electronic Journal, 38(4), pp. 2461-2495.
Koehler, A., Ratzinger-Sakel, N. & Theis, J., 2020. The Effects of Key Audit Matters on the Auditor's Report's Communicative Value: Experimental Evidence from Investment Professionals and Non-professional Investors. Accounting In Europe, 17(2), pp. 105-128.
Li, H., Hay, D. & Lau, D., 2019. Assessing the impact of the new auditor's report. s.l.:Pacific Accounting Review.
Marques, D. d. S., Portugal, G. T. & Almeida, S. R. V., 2019. The Impact Generated by Key Audit Matters on the Application of Audit Procedures. European Journal of Scientific Research, 152(2), pp. 144-152.
Moroney, R., Phang, S.-Y. & Xiao, X., 2020. When Do Investors Value Key Audit Matters?. European Accounting Review, 30(1), pp. 63-82.
PCAOB, 2017. The auditor's on an audit of the financial statements when the auditor expresses an unqualified opinion, s.l.: s.n.
Pratoomsuwan, T. & Yolrabil, O., 2020. Key audit matter and auditor liability: evidence from auditor evaluators in Thailand. Journal Of Applied Accounting Research, 21(4), pp. 741-762.
Segal, M., 2019. Key audit matters: insight from audit experts. Meditari Accountancy Research, 3(27), pp. 472-494.
Sirois, L.-P., Bédard, J. & Bera, P., 2018. The Informational Value of Key Audit Matters in the Auditor’s Report: Evidence from an Eye-tracking Study. Accounting Horizons, 32(2), pp. 141-162.
Sneller, L., Bode, R. & Klerkx, A., 2017. Do IT matters matter? IT-related key audit matters in Dutch annual reports. International Journal Of Disclosure And Governance, 14(2), pp. 139-151.
Tiron-Tudor, A., Cordos, G. S. & Fulop, M. T., 2018. Stakeholders' perception about strengthening the audit report. African Journal Of Accounting Auditing And Finance, 6(1), pp. 43-69.
Trpeska, M., Atanasovski, A. & Lazarevska, Z. B., 2017. The relevance of financial information and contents of the new audit report for lending decisions of commercial banks. s.l., Proceedings of The 12th International Conference Accounting And Management Information Systems (Amis 2017).
Vanstraelen, A., Schelleman, C., Meuwissen, R. & Hofmann, I., 2012. The Audit Reporting Debate: Seemingly Intractable Problems and Feasible Solutions. European Accounting Review, 21(2), pp. 193-215.
Boolaky, P. K. & Quick, R., 2016. Bank Directors' Perceptions of Expanded Auditor's Reports. International Journal of Auditing, 20(2), pp. 158-174.
Christofferson, E. & Gronberg, K., 2018. Informativeness of Key Audit Matter (KAM) Disclosures – An exploratory study of ISA 701 in Sweden, s.l.: University of Gothenburg, School of Business, Economics and Law.
Church, B. K., Davis, S. M. & McCracken, S. A., 2008. The Auditor’s Reporting Model:A Literature Overview and Research Synthesis. Accounting Horizons, 22(1), p. 69–90.
Coram, P. J. & Wang, L., 2020. The Effect of Disclosing Key Audit Matters and Accounting Standard Precision on the Audit Expectation Gap. International Journal ff Auditing, 25(2), pp. 270-282.
Cordos, G.-S. & Fulop, M. T., 2014. A Framework for Understanding and Researching Audit Changes: Key Audit Matters. s.l., Proceedings of The 9th International Conference Accounting And Management Information Systems (Amis 2014).
Daugherty, B. E., Dickins, D., Pitman, M. K. & Tervo, W. A., 2020. The process of identifying and reporting CAMs: early evidence. International Journal of Disclosure And Governance, 18(1), pp. 16-23.
Filipovic, I., Bartulovic, M. & Susak, T., 2019. Key Audit Matters: New Informational Value of Auditor's Report. S.L., Josip Juraj Strossmayer Univ Osijek.
Gold, A., Heilmann, M., Pott, C. & Rematzki, J., 2020. Do key audit matters impact financial reporting behavior?. International Journal Of Auditing, 24(2), pp. 232-244.
Gray, L. G., Turner, L. J., Coram, J. P. & Mock, J. T., 2011. Perceptions and Misperceptions Regarding the Unqualified Auditor's Report by Financial Statement Preparers, Users, and Auditors. Accounting Horizons, 25(4), pp. 659-684.
Guiral-Contreras, A., Gonzalo-Angulo, J. & Rodgers, W., 2007. Information content and recency effect of the audit report in loan rating decisions. Accounting and Finance, 47(2), pp. 285-304.
Hoang, H. & Phang, S.-Y., 2020. How Does Combined Assurance Affect the Reliability of Integrated Reports and Investors' Judgments?. European Accounting Review, 30(1), pp. 175-195.
IAASB, 2011. Enhancing the value of auditor reporting: Exploring options for change, s.l.: s.n.
IAASB, 2013. Reporting on audited financial statements: Proposed new and revised International Standards on Auditing (Exposure Draft), s.l.: s.n.
IAASB, 2015a. ) International Standard on Auditing (ISA) 701 Communicating Key Audit Matters in the Independent Auditor’s Report, s.l.: s.n.
IAASB, 2016. International Standard on Auditing 701 Communicating Key Audit Matters in the Independent Auditor’s Report. s.l.:s.n.
In, C.-y., Kim, T. & Park, S., 2020. Key Audit Matters for Production-To-Order Industry and Conservatism. International Journal Of Financial Studies, 8(1), pp. 1-18.
Iwanowicz, T. & Iwanowicz, B., 2019. ISA 701 and Materiality Disclosure as Methods to Minimize the Audit Expectation Gap. Journal of Risk And Financial Management, 12(4), pp. 1-20.
Jermakovicz, E. K., Epstein, B. J. & Ramamoorti, S., 2018. CAM versus KAM – A Distinction without a difference?. The CPA Journal, pp. 34-40.
Kitiwong, W. & Sarapaivanich, N., 2020. Consequences of the implementation of expanded audit reports with key audit matters (KAMs) on audit quality. Managerial Auditing Journal, 35(8), pp. 1095-1119.
Knechel, W., Mao, J., Baolei, Q. & Zhuang, Z., 2016. Is There a Brain Drain in Auditing? The Determinants and Consequences of Auditors Leaving Public Accounting. SSRN Electronic Journal, 38(4), pp. 2461-2495.
Koehler, A., Ratzinger-Sakel, N. & Theis, J., 2020. The Effects of Key Audit Matters on the Auditor's Report's Communicative Value: Experimental Evidence from Investment Professionals and Non-professional Investors. Accounting In Europe, 17(2), pp. 105-128.
Li, H., Hay, D. & Lau, D., 2019. Assessing the impact of the new auditor's report. s.l.:Pacific Accounting Review.
Marques, D. d. S., Portugal, G. T. & Almeida, S. R. V., 2019. The Impact Generated by Key Audit Matters on the Application of Audit Procedures. European Journal of Scientific Research, 152(2), pp. 144-152.
Moroney, R., Phang, S.-Y. & Xiao, X., 2020. When Do Investors Value Key Audit Matters?. European Accounting Review, 30(1), pp. 63-82.
PCAOB, 2017. The auditor's on an audit of the financial statements when the auditor expresses an unqualified opinion, s.l.: s.n.
Pratoomsuwan, T. & Yolrabil, O., 2020. Key audit matter and auditor liability: evidence from auditor evaluators in Thailand. Journal Of Applied Accounting Research, 21(4), pp. 741-762.
Segal, M., 2019. Key audit matters: insight from audit experts. Meditari Accountancy Research, 3(27), pp. 472-494.
Sirois, L.-P., Bédard, J. & Bera, P., 2018. The Informational Value of Key Audit Matters in the Auditor’s Report: Evidence from an Eye-tracking Study. Accounting Horizons, 32(2), pp. 141-162.
Sneller, L., Bode, R. & Klerkx, A., 2017. Do IT matters matter? IT-related key audit matters in Dutch annual reports. International Journal Of Disclosure And Governance, 14(2), pp. 139-151.
Tiron-Tudor, A., Cordos, G. S. & Fulop, M. T., 2018. Stakeholders' perception about strengthening the audit report. African Journal Of Accounting Auditing And Finance, 6(1), pp. 43-69.
Trpeska, M., Atanasovski, A. & Lazarevska, Z. B., 2017. The relevance of financial information and contents of the new audit report for lending decisions of commercial banks. s.l., Proceedings of The 12th International Conference Accounting And Management Information Systems (Amis 2017).
Vanstraelen, A., Schelleman, C., Meuwissen, R. & Hofmann, I., 2012. The Audit Reporting Debate: Seemingly Intractable Problems and Feasible Solutions. European Accounting Review, 21(2), pp. 193-215.
Published
2022-03-04
How to Cite
Porumbacean, T., & Tiron-Tudor, A. (2022). Key Audit Matters: Influences and Relevance for Stakeholders A review of the academic literature: Array. The Journal of Accounting and Management, 11(3). Retrieved from https://dj.univ-danubius.ro/index.php/JAM/article/view/1603
Issue
Section
Articles
License
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
