Translating audit materiality in disclosure: Competing logics and different outcomes in Australia and New Zealand

Kend, Michael; Nguyen, Lan Anh

doi:10.1016/j.cpa.2022.102502

Cited by 1 publication

(4 citation statements)

References 55 publications

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“…They recommend the application of institutional theory to offer new insights into audit reports. Several researchers have adopted institutional theory to explain auditor risk assessments/KAMs/CAMs, including Kend and Nguyen (2022b), Nguyen and Kend (2021), Pelzer (2021), Rahaman et al. (2022) and Rousseau and Zehms (2022).…”

Section: Theoretical Perspectivesmentioning

confidence: 99%

“…They argue that under new institutional sociology organisations are assumed to become isomorphic as they adapt to new institutional rules and regulations, to which they are expected to blindly conform to ensure legitimacy and survival. Kend and Nguyen (2022b) adopt institutional theory to explain difference in audit materiality disclosure practices between external auditors in Australia and New Zealand. They argue that the interplay between competing institutional logics explain differences in auditor disclosure practices, specifically stakeholder versus legalistic logics.…”

Section: Theoretical Perspectivesmentioning

confidence: 99%

“…Under such circumstances, we argue that the safest course of action for auditors was to normalise the disclosures by falling back on boilerplate disclosures. Kend and Nguyen (2022b) report that expanded audit reports were introduced in Australia and New Zealand on a voluntary basis. This voluntary disclosure context may explain why Kend and Nguyen (2022b) found PwC breaking ranks with the other three Big 4 firms.…”

Section: Introductionmentioning

confidence: 99%

“…Kend and Nguyen (2022b) report that expanded audit reports were introduced in Australia and New Zealand on a voluntary basis. This voluntary disclosure context may explain why Kend and Nguyen (2022b) found PwC breaking ranks with the other three Big 4 firms. We contend that the risky context of early introduction of expanded audit reports, together with their mandatory nature, forced the Big 4 into adopting similar disclosures, a less risky position than any one of them breaking ranks.…”

Section: Introductionmentioning

confidence: 99%

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Disclosure of auditor risk assessments in expanded audit reports

Dwyer

Brennan²,

Kirwan³

2023

JAAR

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PurposeThis rich descriptive study examines auditors' client risk assessment (i.e. “key audit matters”/critical audit matters) disclosures in expanded audit reports of 328 Financial Times Stock Exchange (FTSE) 350 companies. The study compares auditor-identified client risks with corporate risk disclosures identified in audit committee reports, in terms of number and type of risks. The research also compares variation in auditor-identified client risks between individual Big 4 audit firms. In addition, the study examines auditor ranking of their client risks disclosed.Design/methodology/approachThe study manually content analyses disclosures in audit reports and audit committee reports of a sample of 328 FTSE-350 companies with 2015 year-ends.FindingsAudit committees identify more risks than auditors (23% more risks). However, auditor-identified client risks and audit-committee-identified risks are similar (80% similar), as are auditor-identified client risks between the individual Big 4 audit firms. Only ten (3%) audit reports rank the importance of auditor-identified client risks.Research limitations/implicationsSample is restricted to one year, one jurisdiction, large-listed companies and companies audited by Big 4 auditors.Practical implicationsThe study provides important insights for regulators, auditors and users of financial statements by identifying influences on disclosure of auditor-identified client risks.Originality/valueThe paper mobilises institutional theory to interpret the findings. The findings suggest that auditor-identified client risks in expanded audit reports may demonstrate mimetic behaviour in terms of similarity with audit-committee-identified risks and similarity between individual Big 4 audit firms. The study provides important insights for regulators, auditors and users of financial statements by identifying influences on disclosure of auditor-identified client risks.

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