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The impact of critical audit matters on audit report lag and audit fees: evidence from the United States

Nian Lim (Vic) Lee (Accounting Department, California State Polytechnic University Pomona, Pomona, California, USA)
Mohamed Sami Khalaf (Accounting Department, Alexandria University, Alexandria, Egypt)
Magdy Farag (Accounting Department, California State Polytechnic University Pomona, Pomona, California, USA)
Mohamed Gomaa (Accounting Department, California State Polytechnic University Pomona, Pomona, California, USA)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Article publication date: 13 February 2024

291

Abstract

Purpose

This paper aims to investigate the impact of the implementation of the critical audit matters (CAMs) disclosure requirement and the subsequent relationship between CAM disclosures and audit report lag, as well as audit fees in the USA.

Design/methodology/approach

This study used difference-in-differences analyses to investigate the impact that the implementation of the requirement for auditors to report CAMs on their audit report has on the audit process. It also used levels regression models to examine the relationship that CAM disclosures have with audit report lag and audit fees.

Findings

This study found that the implementation of the CAM disclosure requirement in the USA reduced audit report lag while not significantly affecting audit fees. This suggests that the CAM disclosure requirement may increase the cooperation between auditors and managers and improve the efficiency of the audit process.

Practical implications

This study’s results are informative for assessing the economic impact of requiring CAM disclosures, which should be of importance to regulators, auditors and accounting researchers.

Originality/value

This study used different approaches to investigate two aspects of the CAM disclosure requirement – the effect of the implementation of the disclosure requirement and the subsequent effects related to CAM reporting outcomes. Unlike many previous studies investigating CAM disclosures, which relied on experiments and questionnaires, this study used actual CAM disclosure data in the USA to investigate the impact on audit report lag and audit fees.

Keywords

Acknowledgements

The authors would like to thank participants of their presentation at the Western Decision Science Conference (2023) for their helpful comments. Authors would also like to thank two anonymous reviewers and the editor for their helpful comments and suggestions.

Citation

Lee, N.L.(V)., Khalaf, M.S., Farag, M. and Gomaa, M. (2024), "The impact of critical audit matters on audit report lag and audit fees: evidence from the United States", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-03-2023-0158

Publisher

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Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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