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Understanding the determinants of the magnitude of entity-level risk and account-level risk key audit matters: The case of the United Kingdom

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  • Sierra-García, Laura
  • Gambetta, Nicolás
  • García-Benau, María A.
  • Orta-Pérez, Manuel

Abstract

This study was conducted to analyse the influence of auditor and client characteristics on the magnitude and type of key audit matters (KAM) disclosed in the audit reports of the FTSE 100 companies in the UK during the period 2013–2016. A recently introduced standard requires auditors to reveal the main risks faced by the client and to describe how these are addressed in the audit. Our results show that Deloitte, EY and KPMG tend to report fewer entity-level-risk KAM (ELRKAM) than PwC, while KPMG and BDO report fewer account-level-risk KAM (ALRKAM) than PwC. In general, auditors of companies that pay higher audit services fees present more ELRKAM and fewer ALRKAM. Our findings also show that client characteristics are relevant to the number and type of KAM included in the audit report. Our results show that auditor and client characteristics are determinants of the number of KAM disclosed and, moreover, determine the type of KAM disclosed in the audit reports.

Suggested Citation

  • Sierra-García, Laura & Gambetta, Nicolás & García-Benau, María A. & Orta-Pérez, Manuel, 2019. "Understanding the determinants of the magnitude of entity-level risk and account-level risk key audit matters: The case of the United Kingdom," The British Accounting Review, Elsevier, vol. 51(3), pages 227-240.
    • Handle: RePEc:eee:bracre:v:51:y:2019:i:3:p:227-240
    DOI: 10.1016/j.bar.2019.02.004
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