The perceived impact of the KAM reforms on audit reports, audit quality and auditor work practices: stakeholders’ perspectives

Abstract

Purpose The purpose of this study is to understand how the new reforms related to key audit matters (KAM) disclosures in Australia may have impacted audit quality by eliciting the perceptions of key stakeholders in the audit and assurance services market. Design/methodology/approach The study uses a qualitative approach and New Institutional Sociology (NIS) to explain how auditors have responded to the KAM reforms. Interviews were conducted with 20 individuals representing identified groups of stakeholders in the market for audit and assurance services in Australia. Findings The study finds there is little consensus between some stakeholder groups on whether the KAM reforms may have improved audit quality, based on the perceptions shared. The findings conveyed that the auditors and regulators, standard setters acknowledge that KAM disclosures are either costly and/or time-consuming to implement. The Big Four auditors indicate these reforms led to changes mainly around internal consultations and independent reviews, whereas the non-Big Four auditors highlighted increased interactions with audit clients. Originality/value This is one of the first studies to examine the perceived post-implementation impacts on audit quality of the KAM reforms (ISA 701) after the initial two years of implementation and how auditors have responded, explored through the lens of institutional logic.

Key audit risks and audit procedures during the initial year of the COVID-19 pandemic: an analysis of audit reports 2019-2020

“…The KAM disclosures in the extended audit reports may help alleviate some of these concerns of shareholders (Nguyen and Kend, 2021;Kend et al, 2021) and if so, improve the effectiveness of auditors in their monitoring role of company management. However, at this stage, there is not enough empirical research Analysis of audit reports 2019-2020 to support whether KAM disclosures help to better align both the agent's and principal's best interests (Nguyen and Kend, 2021). Future research should also examine whether user confidence in audit reports had improved during the COVID-19 pandemic.…”

“…Shareholders may also express concerns about information asymmetries where agents are in possession of information to which they do not have access (Houghton et al, 2013). The KAM disclosures in the extended audit reports may help alleviate some of these concerns of shareholders (Nguyen and Kend, 2021;Kend et al, 2021) and if so, improve the effectiveness of auditors in their monitoring role of company management. However, at this stage, there is not enough empirical research Analysis of audit reports 2019-2020 to support whether KAM disclosures help to better align both the agent's and principal's best interests (Nguyen and Kend, 2021).…”

“…Results from other studies suggest that the KAMs section allows a better and more comprehensive assessment of a company's current financial situation (Nguyen and Kend, 2021). Köhler et al (2016) find that the disclosure of negative KAMs has a positive influence on investors' evaluation ability regarding company performance.…”

“…With these unique characteristics and differences in audit report disclosures, the present study of Australia will allow enrichment of the current international debate on the reforms related to audit and the informational value of KAM disclosures (Nguyen and Kend, 2021). The extended audit report in Australia deals with the KAM reforms through ISA 701, and given the concerns raised from the Parliamentary Joint Committee Inquiry into The Regulation of Auditing in Australia (2019), it is timely to revisit the issues surrounding these audit reforms, particularly during the COVID-19 pandemic.…”

Impact of auditor characteristics and Covid-19 Pandemic on KAMs reporting

“…The qualifications, experience, job position and the type of audit firm did have an impact on the disclosure of KAMs in audit reports. Experienced auditors in specific industries and with professional degrees are expected to provide audit reports with detailed disclosure of KAMs (Wuttichindanon and Issarawornrawanich, 2020; Nguyen and Kend, 2021). The current study investigates the impact of the auditors’ characteristics on KAMs disclosure and how such disclosure is affected by the COVID-19 pandemic outbreak.…”