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Consequences of the implementation of expanded audit reports with key audit matters (KAMs) on audit quality

Author

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  • Weerapong Kitiwong
  • Naruanard Sarapaivanich

Abstract

Purpose - This paper aims to ask whether the implementation of the expanded auditor’s report, which included a requirement to disclose key audit matters (KAMs) in Thailand since 2016, has improved audit quality. Design/methodology/approach - To answer this question, the authors examined audit quality two years before and two years after its adoption by analysing 1,519 firm-year observations obtained from 312 companies. The authors applied logistic regression analyses to the firm-year observations. Findings - The authors found some weak evidence that KAMs disclosure improved audit quality because of auditors putting more effort into their audits and audits being performed thoroughly after the implementation of KAMs. Interestingly, the number of disclosed KAMs and the most common types of disclosed KAMs are not associated with audit quality. Only disclosed KAMs related to acquisitions are more informative because the presence of this type of disclosed KAMs signals the greater likelihood of financial restatements being made in a later year. Originality/value - Unlike previous studies on the impact of KAMs disclosure on audit quality, which used discretionary accruals as proxy for audit quality, this study used the occurrence of financial restatements.

Suggested Citation

  • 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.
    • Handle: RePEc:eme:majpps:maj-09-2019-2410
    DOI: 10.1108/MAJ-09-2019-2410
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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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).
    4. 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.
    5. Lin, Hsiao-Lun & Yen, Ai-Ru, 2022. "Auditor rotation, key audit matter disclosures, and financial reporting quality," Advances in accounting, Elsevier, vol. 57(C).

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