The textual similarity of KAM disclosures for Spanish companies

Abstract

We investigate and document the textual similarity of key audit matter (KAM) disclosures by using KAM items in auditor’s reports of Spanish companies in fiscal years 2017 and 2018. The main objective is to understand how similar KAMs are disclosed from one year to another. Following prior literature, we use the cosine similarity to measure the textual similarity between KAM items in terms of word usage. We classify and analyze KAM items for two consecutive years based on the following three combinations: (1) KAM topic, (2) KAM topic and auditor, and (3) KAM topic, auditor, and industry of the client being audited. The results indicate that auditors from the same accounting firm tend to have a recurring textual similarity under each KAM topic, and such similarity increases for clients within the same industry. The results add empirical evidence to the understanding of the recurring textual similarity of KAM disclosures

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.…”

“…This similarity proxy measures the proportion of similar KAM relative to the total KAM reported, ranging between 0% and 100%. The higher the percentage, the more significant the proportion of KAM similar to those already reported in the previous year for the same company, which suggests less effectiveness of NBC-TA 701 (Hsieh et al, 2021).…”

“…As highlighted by Hsieh et al (2021), this high KAM similarity rate may be explained by accounting standards, auditors' risk assessments, and the lack of changes in independent auditors' practices and methodologies.…”

“…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).…”