IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v60y2023i3d10.1007_s11156-023-01128-5.html
   My bibliography  Save this article

What underlies key audit matters? Evidence from Taiwan

Author

Listed:
  • Shao-Huai Liang

    (National Cheng Kung University)

  • Yu-Ting Hsieh

    (National Cheng Kung University)

  • Hsuan-Chu Lin

    (National Cheng Kung University)

  • Hui-Yu Hsiao

    (National Cheng Kung University)

Abstract

This study investigates what specific information underlies key audit matters (KAMs). Investigating Taiwan listed companies from 2016 to 2020 in which the audit market is highly price-competitive and has a relatively low litigation risk, we find that companies’ accounting performance is relatively poor when more KAMs are disclosed by auditors. The negative association between accounting performance measures and the number of KAMs is enhanced when auditors’ perceived risk increases. When auditors perceive increased risk, they convey negative accounting performance-related information through the number of KAMs disclosed to fulfill their professional due diligence. We also find a negative association between changes in the types of KAMs disclosed and accounting performance in the current and next years. This finding suggests that changes in the types of KAMs disclosed by auditors reflect that companies are subject to major changes in business strategies or operating conditions and may have poor accounting performance in the near future.

Suggested Citation

  • Shao-Huai Liang & Yu-Ting Hsieh & Hsuan-Chu Lin & Hui-Yu Hsiao, 2023. "What underlies key audit matters? Evidence from Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 60(3), pages 1243-1258, April.
    • Handle: RePEc:kap:rqfnac:v:60:y:2023:i:3:d:10.1007_s11156-023-01128-5
    DOI: 10.1007/s11156-023-01128-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11156-023-01128-5
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11156-023-01128-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Weerapong Kitiwong & Naruanard Sarapaivanich, 2020. "Consequences of the implementation of expanded audit reports with key audit matters (KAMs) on audit quality," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 35(8), pages 1095-1119, July.
    2. Eli Amir & Yanling Guan & Gilad Livne, 2007. "The Association of R&D and Capital Expenditures with Subsequent Earnings Variability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1‐2), pages 222-246, January.
    3. Ann Vanstraelen & Caren Schelleman & Roger Meuwissen & Isabell Hofmann, 2012. "The Audit Reporting Debate: Seemingly Intractable Problems and Feasible Solutions," European Accounting Review, Taylor & Francis Journals, vol. 21(2), pages 193-215, August.
    4. Elizabeth Gutierrez & Miguel Minutti-Meza & Kay W. Tatum & Maria Vulcheva, 2018. "Consequences of adopting an expanded auditor’s report in the United Kingdom," Review of Accounting Studies, Springer, vol. 23(4), pages 1543-1587, December.
    5. repec:eme:maj000:maj-09-2019-2410 is not listed on IDEAS
    6. Yu-Ting Hsieh & Chan-Jane Lin & Hsihui Chang, 2022. "Does office size matter in client acceptance decisions? Evidence from big 4 accounting firms," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 383-407, January.
    7. Paul J. Coram & Theodore J. Mock & Jerry L. Turner & Glen L. Gray, 2011. "The Communicative Value of the Auditor's Report," Australian Accounting Review, CPA Australia, vol. 21(3), pages 235-252, September.
    8. Keith A. Houghton & Christine Jubb & Michael Kend, 2011. "Materiality in the context of audit: the real expectations gap," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 26(6), pages 482-500, June.
    9. 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.
    10. Michael Davern & Nikole Gyles & Dean Hanlon & Matthew Pinnuck, 2019. "Is Financial Reporting Still Useful? Australian Evidence," Abacus, Accounting Foundation, University of Sydney, vol. 55(1), pages 237-272, March.
    11. repec:eme:maj000:02686901111142549 is not listed on IDEAS
    12. Gwen Yu & Aida Sijamic Wahid, 2014. "Accounting Standards and International Portfolio Holdings," Harvard Business School Working Papers 14-059, Harvard Business School.
    13. Lauren C. Reid & Joseph V. Carcello & Chan Li & Terry L. Neal & Jere R. Francis, 2019. "Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom," Contemporary Accounting Research, John Wiley & Sons, vol. 36(3), pages 1501-1539, September.
    14. Keith A. Houghton & Christine Jubb & Michael Kend, 2011. "Materiality in the context of audit: the real expectations gap," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(6), pages 482-500, June.
    15. Sharad Asthana & Inder Khurana & K. K. Raman, 2019. "Fee competition among Big 4 auditors and audit quality," Review of Quantitative Finance and Accounting, Springer, vol. 52(2), pages 403-438, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tarek Abdelfattah & Mohamed Elmahgoub & Ahmed A. Elamer, 2021. "Female Audit Partners and Extended Audit Reporting: UK Evidence," Journal of Business Ethics, Springer, vol. 174(1), pages 177-197, November.
    2. Duboisée de Ricquebourg, Alan & Maroun, Warren, 2023. "How do auditor rotations affect key audit matters? Archival evidence from South African audits," The British Accounting Review, Elsevier, vol. 55(2).
    3. Karen‐Ann M. Dwyer & Niamh M. Brennan & Collette E. Kirwan, 2023. "Auditor Materiality in Expanded Audit Reports: More (Disclosure) is Less," Australian Accounting Review, CPA Australia, vol. 33(1), pages 31-45, March.
    4. Sau Yu Ong & Robyn Moroney & Xinning Xiao, 2022. "How do key audit matter characteristics combine to impact financial statement understandability?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 805-835, March.
    5. Li, Valerie & Luo, Yan, 2023. "Costs and benefits of auditors' disclosure of critical audit matters: Initial evidence from the United States," Advances in accounting, Elsevier, vol. 60(C).
    6. Lin, Hsiao-Lun & Yen, Ai-Ru, 2022. "Auditor rotation, key audit matter disclosures, and financial reporting quality," Advances in accounting, Elsevier, vol. 57(C).
    7. Kong, Dongmin & Ji, Mianmian & Liu, Shasha, 2022. "Does the mandatory disclosure of audit information affect analysts' information acquisition?," International Review of Financial Analysis, Elsevier, vol. 83(C).
    8. Chan-Chuan Ting, 2023. "The Association Between Changes in Key Audit Matters and Earnings Management Behavior in Companies," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 13(6), pages 1-3.
    9. Pranil Prasad & Parmod Chand, 2017. "The Changing Face of the Auditor's Report: Implications for Suppliers and Users of Financial Statements," Australian Accounting Review, CPA Australia, vol. 27(4), pages 348-367, December.
    10. Nicolás Gambetta & Laura Sierra‐García & María Antonia García‐Benau & Josefina Novejarque‐Civera, 2023. "The Informative Value of Key Audit Matters in the Audit Report: Understanding the Impact of the Audit Firm and KAM Type," Australian Accounting Review, CPA Australia, vol. 33(2), pages 114-134, June.
    11. Qian Sai & Yanxi Li & Yanwen Liu & Heng Zhao & Shanshan Ouyang, 2024. "Audit report information improvement and earnings management," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 425-442, January.
    12. George Silviu CORDOŞ & Melinda Timea FÜLÖP, 2020. "Debates In The Literature Regarding Audit Reporting," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(22), pages 1-4.
    13. Nien-Su Shih, 2024. "Does Using the Extended Audit Report Decrease Information Asymmetry in Family Firms?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(1), pages 1-3.
    14. Hien Hoang & Robyn Moroney & Soon‐Yeow Phang & Xinning Xiao, 2023. "Investor reactions to key audit matters: Financial and non‐financial contexts," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3325-3349, September.
    15. Zhai, Huayun & Lu, Meiting & Shan, Yaowen & Liu, Qingzhuo & Zhao, Ying, 2021. "Key audit matters and stock price synchronicity: Evidence from a quasi-natural experiment in China," International Review of Financial Analysis, Elsevier, vol. 75(C).
    16. Smith, Kecia Williams, 2023. "Tell Me More: A content analysis of expanded auditor reporting in the United Kingdom," Accounting, Organizations and Society, Elsevier, vol. 108(C).
    17. Pinto, Inês & Morais, Ana Isabel & Quick, Reiner, 2020. "The impact of the precision of accounting standards on the expanded auditor’s report in the European Union," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 40(C).
    18. Yan Luo, 2021. "Determinants and consequence of critical audit matter disclosure: early evidence," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(4), pages 336-345, December.
    19. Ran An & Wentao Li & Di Wang & Yanyan Wang & Lisheng Yu, 2023. "Do Key Audit Matters Affect Operating Activities? Evidence from Inventory Management," Abacus, Accounting Foundation, University of Sydney, vol. 59(1), pages 300-339, March.
    20. Zhang, Penny F. & Shailer, Greg, 2021. "Changes in audit effort and changes in auditors’ disclosures of risks of material misstatement," The British Accounting Review, Elsevier, vol. 53(3).

    More about this item

    Keywords

    Extended audit report; Key audit matters; Accounting performance; Audit risks;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:60:y:2023:i:3:d:10.1007_s11156-023-01128-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.