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Article
Publication date: 13 January 2021

Muttanachai Suttipun

This study aims to investigate the extent, level and pattern of key audit matters (KAMs) reporting by companies listed in the market for alternative investment (MAI) in…

Abstract

Purpose

This study aims to investigate the extent, level and pattern of key audit matters (KAMs) reporting by companies listed in the market for alternative investment (MAI) in Thailand, and to test for a relationship between the external auditors and KAMs reporting.

Design/methodology/approach

The population and sample used in this study were all companies listed in the MAI. Based on the annual reports issued by the sample of companies from 2016 to 2018, content analysis was used to quantify the KAMs reporting in the audit reports by using word counting and a checklist. Descriptive analysis, correlation matrix and multiple regression were used to analyse the data.

Findings

The results showed that the word counts of KAMs reporting fluctuated around 600 words during the three year period studied, while the number of issues on which KAMs reporting was performed was similar each year with an average of 1.63 KAMs issues per company. Moreover, the study found a significant positive relationship between auditor type, audit fees and the level of KAMs reporting.

Practical implications

This is the first longitudinal study of the KAMs reporting of companies listed in the alternative capital market in Thailand.

Originality/value

Communication and legitimacy theories were found to offer cogent explanations explaining the quality of and reasons for KAMs reporting by Thai listed companies as a reaction to the need for quality communication between external auditors and company stakeholders, based on external pressure due to societal expectations.

Details

Meditari Accountancy Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 9 December 2020

Chee Kwong Lau

This study examines (1) the extent of key audit matters (KAMs) reported by auditors is related to accounting estimates, (2) whether measurement uncertainty and management…

Abstract

Purpose

This study examines (1) the extent of key audit matters (KAMs) reported by auditors is related to accounting estimates, (2) whether measurement uncertainty and management bias affect auditors to do so and (3) whether the use of accounting estimates, given the measurement uncertainty and management bias reported in KAMs adversely affects the decision usefulness of accounting information.

Design/methodology/approach

Data on key audit matters, accounting estimates, measurement uncertainty, management bias, etc. were collected from the auditor's reports of 351 sample Chinese listed firms. It employs regression analyses to assess the hypotheses on issues affecting the report of these key audit matters and the impacts on the decision usefulness of accounting information.

Findings

Fair value and impairment loss estimations make up of 2.6 and 44.1% of the 606 KAMs identified, respectively. Measurement uncertainty is positively, while management bias is negatively, affecting auditors report KAMs related to accounting estimates. The use of accounting estimates in firms where their auditors reported the KAMs related to accounting estimates does not enhance the value and predictive relevance of reported earnings. The assurance works on, and reporting of, KAMs served as a “red flag” about the accounting estimates.

Practical implications

The use of accounting estimates does not always lead to enhanced decision-useful accounting information. Auditors, in their stewardship role, shall ensure that the measurement uncertainty issue is appropriately identified, addressed and verified. In addition, they shall provide an effective check-and-balance to the accounting discretion managers have in providing decision-useful information from opportunistic reporting.

Originality/value

This study examines the proposition that while the use of estimates can enhance the decision usefulness of accounting information, it can also induce measurement uncertainty and management bias into financial reporting.

Details

Asian Review of Accounting, vol. 29 no. 1
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 3 June 2019

Milton Segal

Key audit matters (KAM) and their impact on the auditor is a relatively understudied area. The purpose of this study is to analyse whether auditors perceive that the…

Abstract

Purpose

Key audit matters (KAM) and their impact on the auditor is a relatively understudied area. The purpose of this study is to analyse whether auditors perceive that the recent requirement for auditors of listed companies to report KAMs has enhanced the transparency of audit reports or not, what additional risks they now face, how the risk is being managed and its impact on the relationship with their clients.

Design/methodology/approach

The paper uses an interpretive approach for detailed interviews with some of South Africa’s leading audit experts to highlight their perspective of the impact of KAM on audit reporting and the audit environment.

Findings

The experts have various perceptions of what makes a matter “key”. These vary from materiality, to subjectivity and difficulty, as well as incorporating a time-based consideration. Concerns identified include a significant increase in cost and an increase in potential liability, triggering the need for thorough internal risk management policies. The audit experts conclude that KAM has ultimately failed to achieve its goal of greater transparency, with clients virtually ignoring KAM reports.

Research limitations/implications

The research relies on a relatively small sample of subject experts and may not provide a complete account of the view of all audit professionals and KAM reports issued. It analyses the impact of KAM from the preparers’ perspective.

Originality/value

This study contributes to the research conducted in this topical area. Although there has been research on KAM focusing on pre-implementation consequences, there is virtually no formal academic research on the impact KAM has had on audit partners and firms in South Africa post implementation. It may also serve as a basis for the IAASB to consider going forward.

Details

Meditari Accountancy Research, vol. 27 no. 3
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 22 July 2020

Weerapong Kitiwong and Naruanard Sarapaivanich

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…

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.

Details

Managerial Auditing Journal, vol. 35 no. 8
Type: Research Article
ISSN: 0268-6902

Keywords

Content available
Article
Publication date: 4 February 2019

Hong Li, David Hay and David Lau

Changes to the auditor’s report have been proposed and issued internationally to provide more relevant information to users and enhance the perceived value of financial…

Abstract

Purpose

Changes to the auditor’s report have been proposed and issued internationally to provide more relevant information to users and enhance the perceived value of financial statement audits. This paper aims to investigate the impact of audit reporting changes on audit quality and audit fees in the New Zealand context.

Design/methodology/approach

The authors examined audit quality measured by absolute abnormal accruals and audit fees for New Zealand listed companies.

Findings

The evidence suggests the enhanced audit reports were followed by an improvement in audit quality as proxied by a reduction in absolute abnormal accruals upon the adoption of the new audit reporting requirements. There was also a significant increase in audit fees.

Practical implications

Although the new auditor reporting requirements are associated with improvements in audit quality, such benefit does not come without cost.

Originality/value

The study provides evidence about the impact of this recent substantial reform to auditing.

Details

Pacific Accounting Review, vol. 31 no. 1
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 26 November 2020

Suneerat Wuttichindanon and Panya Issarawornrawanich

In Southeast Asia, auditors play a crucial role in the quality of financial reports. With the introduction of a new format of auditors’ report that requires disclosure of…

Abstract

Purpose

In Southeast Asia, auditors play a crucial role in the quality of financial reports. With the introduction of a new format of auditors’ report that requires disclosure of key audit matters (KAM), the disclosure practice of auditors is, thus, of great interest. Specifically, this study aims to investigate the factors that auditors take into consideration when issuing KAMs.

Design/methodology/approach

The research design is quantitative, with a focus on the number of KAM disclosures issued by auditors. As existing studies rely on the number of KAM disclosures in the analysis, this current research, thus, uses the quantity of KAM disclosures for comparison purposes. The analysis relies on secondary data and multiple regression analysis is used to establish the association between the number of KAM disclosures and three groups of determining factors, namely, auditor characteristics, corporate governance mechanisms and firm characteristics.

Findings

The significant determining factors of KAM disclosure include auditor’s litigation risk, firm complexity, profitability and industry type. Firms using a Big 4 audit firm, firms with many subsidiaries and firms in the technology, property and construction and finance industries have higher numbers of KAMs, while highly profitable firms issue lower numbers of KAMs. As for corporate governance mechanisms, the number of KAMs is significantly positively correlated with the number of independent directors (p < 0.10).

Originality/value

This research includes key corporate governance parties in the examination, including external auditors, independent directors and audit committees. The finding affirms the influence of Big 4 on KAM disclosure in Southeast Asia, while their roles are not significant in Western samples. The result also unearths the monitoring role of independent directors in KAM disclosure. The role of the audit committee in KAM disclosure is insignificant in Thai samples, while the committee role is statistically significant in the Western samples. Variations in the findings between this study and previous research could be attributed to differences in institutional settings between both regions.

Details

Pacific Accounting Review, vol. 32 no. 4
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 30 June 2020

Thanyawee Pratoomsuwan and Orapan Yolrabil

This study examines the effects of key audit matter (KAM) disclosures in auditors' reports on auditor liability in cases of fraud and error misstatements using evaluators…

Abstract

Purpose

This study examines the effects of key audit matter (KAM) disclosures in auditors' reports on auditor liability in cases of fraud and error misstatements using evaluators with audit experience.

Design/methodology/approach

The experiment is conducted using 174 professional auditors as participants.

Findings

The participating auditors assess higher auditor liability when misstatements are related to errors rather than when they are related to fraud. In addition, the results also demonstrate that KAM disclosures reduce auditor liability only in cases of fraud and not in cases of errors. Together, the results support the view that KAM reduces the negative affective reactions of evaluators, which in turn, reduce the assessed auditor liability.

Research limitations/implications

This study did not analyze the setting in which auditors who act as peer evaluators had an opportunity to discuss the case among their peers, which may have affected their judgments.

Practical implications

The results of KAM disclosures on auditor liability in cases of error and fraud misstatements inform auditors that, different from the auditors' concern that disclosing KAM may increase auditors' legal risk, it tends to decrease or at least have no impact on the liability judgment.

Originality/value

This study contributes to the accounting literature by adding findings on another aspect of KAM in different audit settings, particularly, in the Thai legal environment with different types of undetected misstatements. The current conflicting results on how KAM disclosures affect auditor liability warrant further investigation of this issue in other audit contexts in different countries.

Details

Journal of Applied Accounting Research, vol. 21 no. 4
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 13 September 2019

Patrick Velte

The purpose of this paper is to focus on audit committees’ financial and industry expertise (FIE) and their impact on the readability of key audit matters (KAMs).

Abstract

Purpose

The purpose of this paper is to focus on audit committees’ financial and industry expertise (FIE) and their impact on the readability of key audit matters (KAMs).

Design/methodology/approach

Based on an agency-theoretical framework, analyses are conducted of data from a sample of UK premium listed companies for the fiscal years 2014–2017 (i.e. 1,319 firm-year observations). Correlation and regression analyses are conducted to evaluate possible associations between FIE in audit committees and KAM readability. The author relies on popular readability measures (Flesch Reading Ease and Fog Index).

Findings

Audit committees’ FIE and KAM readability are positively connected. Combined FIE also has a stronger effect than either financial or industry expertise alone.

Research limitations/implications

Companies, regulators and researchers could be significantly affected by the finding that audit committees’ FIE can have a considerable impact on KAM readability.

Originality/value

The analysis of the link between audit committees’ FIE and KAM readability makes a contribution to prior empirical research on KAM.

Details

Journal of Applied Accounting Research, vol. 21 no. 1
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 4 November 2014

Markus Vanharanta, Alan J.P. Gilchrist, Andrew D. Pressey and Peter Lenney

This study aims to address how and why do formal key account management (KAM) programmes hinder effective KAM management, and how can the problems of formalization in KAM

Abstract

Purpose

This study aims to address how and why do formal key account management (KAM) programmes hinder effective KAM management, and how can the problems of formalization in KAM be overcome. Recent empirical studies have reported an unexpected negative relationship between KAM formalization and performance.

Design/methodology/approach

An 18-month (340 days) ethnographic investigation was undertaken in the UK-based subsidiary of a major US sports goods manufacturer. This ethnographic evidence was triangulated with 113 in-depth interviews.

Findings

This study identifies how and why managerial reflexivity allows a more effectively combining of formal and post-bureaucratic KAM practices. While formal KAM programmes provide a means to initiate, implement and control KAM, they have an unintended consequence of increasing organizational bureaucracy, which may in the long-run hinder the KAM effectiveness. Heightened reflexivity, including “wayfinding”, is identified as a means to overcome many of these challenges, allowing for reflexively combining formal with post-bureaucratic KAM practices.

Research limitations/implications

The thesis of this paper starts a new line of reflexive KAM research, which draws theoretical influences from the post-bureaucratic turn in management studies.

Practical implications

This study seeks to increase KAM implementation success rates and long-term effectiveness of KAM by conceptualizing the new possibilities offered by reflexive KAM. This study demonstrates how reflexive skills (conceptualized as “KAM wayfinding”) can be deployed during KAM implementation and for its continual improvement. Further, the study identifies how KAM programmes can be used to train organizational learning regarding KAM. Furthermore, this study identifies how and why post-bureaucratic KAM can offer additional benefits after an organization has learned key KAM capabilities.

Originality/value

A new line of enquiry is identified: the reflexive-turn in KAM. This theoretical position allows us to identify existing weakness in the extant KAM literature, and to show a practical means to improve the effectiveness of KAM. This concerns, in particular, the importance of managerial reflexivity and KAM wayfinding as a means to balance the strengths and weaknesses of formal and post-bureaucratic KAM.

Details

European Journal of Marketing, vol. 48 no. 11/12
Type: Research Article
ISSN: 0309-0566

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Article
Publication date: 6 August 2018

Nick Ellis and Akihito Iwasaki

The purpose of this paper is to investigate the relevance to situated managerial practice of the implementation frameworks contained in the global (key) account management…

Abstract

Purpose

The purpose of this paper is to investigate the relevance to situated managerial practice of the implementation frameworks contained in the global (key) account management (GAM) literature and to explore what specific GAM-related issues may be faced by key account managers working for an MNC based in Japan.

Design/methodology/approach

Following a critical literature review, including a discussion of sales management in Japan, an exploratory case study is conducted of a chemical supplier that claims to be making the transition toward GAM.

Findings

The findings confirm that intra-organizational contextual and cultural factors appear to influence the adoption of GAM programs by the focal firm. This suggests there is not a “one size fits all” strategic pathway to implementing GAM, and that western theoretical perspectives on KAM/GAM do not appear to have permeated the sense-making of some Japanese managers.

Research limitations/implications

While the study indicates that the US/European approach to KAM and GAM does not appear to fit well with the Japanese business culture, this conclusion must come with the caveat that this is not necessarily a generalizable case.

Originality/value

Much of the prior B2B marketing literature on KAM and GAM has investigated only western firms. This is possibly the first empirical research on GAM in a Japanese company. The paper offers a number of implications for theory and ponders the wisdom of making recommendations from such a culture-bound study.

Details

Journal of Business & Industrial Marketing, vol. 33 no. 7
Type: Research Article
ISSN: 0885-8624

Keywords

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