Understanding the Determinants of Key Audit Matters

• In Event: Key Audit Matters and Auditor Perceptions

Abstract

This study examines the factors influencing the magnitude and types of key audit matters (KAMs) identified and disclosed by auditors. Specifically, we analyzed whether auditor industry specialization and audit committee independence affect KAMs disclosures. Accordingly, we utilized hand-collected data extracted from a sample of Norwegian listed companies for the fiscal years 2016 - 2018. We find that industry specialist auditors tend to report fewer KAMs whilst audit committees composed of a higher proportion of independent members support the disclosure of a greater number of KAMs. We further observe that both auditor industry specialization and audit committee independence influence the number of the account-level risk types of KAMs but not the entity-level risk types of KAMs. Overall, our results show that both auditor and client specific characteristics determine the magnitude and types of KAMs identified and disclosed by auditors. As the findings imply that aspects of audit firms and corporate governance mechanisms affect the level of KAMs disclosed in the auditor’s report, the results should be of interest to regulators, practitioners and researchers.

Authors

• Gordon Mwintome, University of Agder

• Anna Alon, University of Agder

• Stephen Zamore, University of Agder

• Joseph Agana, University of Agder