Reporting of key audit matters: an analysis based on income smoothing in the brazilian electric power sector

Abstract

Purpose: This research aims to verify the impact of Key Audit Matters (KAMs) on income smoothing practices in Brazilian companies in the electric power sector. The final sample covers 33 companies in this sector, with the study period from 2016 to 2019, as KAMs became mandatory for financial statements issued on or after December 31, 2016. Methodology: To measure intentional income smoothing, two measures were used by capturing different dimensions of income smoothing, namely, general smoothing and accrual-based smoothing, as presented by Lang, Lins, and Maffet (2012). To study KAMs, three distinct proxies were used: the quantity of KAMs reported by company per year, the FLESCH Reading Ease, and the number of words (LENGTH). Results: The results indicate that KAMs do not have a significant impact on the practice of intentional income smoothing in the financial results of the analyzed companies. Contributions of the Study: This work contributes to the literature by advancing previous research carried out in Brazil and by cooperating with regulators and standard setters by suggesting improvements in audit reports.

Keywords

• Audit quality; Income smoothing; KAMs.