THE EFFECTS OF DISCLOSING KEY AUDIT MATTERS IN THE AUDITOR’S REPORT

Abstract

The aim of this paper is to determine whether the disclosure of key audit matters in the auditor’s report increased the communication and informational value of the auditor’s report, the quality of financial statements and the quality of the audit through the analysis of the results of a large number of empirical studies. Most experimental studies show that key audit matters have the potential to effectively direct the attention of users of financial statements to relevant areas, influence the decisions of users of financial statements and reduce the tendency of managers to perform aggressive financial reporting. However, a larger number of studies have found that there is a lack of a broader capital market reaction to the disclosure of key audit matters and that the disclosure of key audit matters does not lead to a reduction in earnings management. Furthermore, most research show that the introduction of the obligation to disclose key audit matters does not lead to an increase in the audit fee and the auditor’s report lag, but that there are possible negative effects of the introduction of the obligation to disclose this information in terms of managers' reluctance to share information about their accounting choices with auditors and the reduction of scepticism assessment and sceptical actions of auditors.

Keywords

• key audit matters (kam)
• investor behaviour
• quality of financial statements
• audit quality