Content characteristics of key audit matters reported by auditors in Bangladesh and their implications for audit quality

Md Khokan Bepari, Shamsun Nahar, Abu Taher Mollik, Mohammad Istiaq Azim

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

Purpose
In this study the authors examine the nature and contents of key audit matters (KAMs), and the consequences of KAMs reporting on audit quality in the context of a developing country, Bangladesh. The authors’ proxies of audit qualities are discretionary accruals, small positive earnings surprise, audit report lag, earnings management via below the line items and audit fees.

Design/methodology/approach
The authors use content analysis of the KAMs for the period 2018–2021 to understand the nature and extent of KAMs reported by auditors in Bangladesh. The authors then use multivariate regression analysis to examine the effect of the number and content characteristics of KAMs on audit quality by using multivariate regression analysis.

Findings
Auditors in Bangladesh disclose a higher number of KAMs compared to other countries, disclose short descriptions of KAMs and industry generic KAMs. The authors document significant cross-sectional variations in the number and content characteristics of KAMs reported by auditors in Bangladesh. The authors’ pre-post analysis suggest that audit quality has improved after the adoption of KAMs. Cross-sectional analysis suggests that KAMs number and content characteristics are related to audit quality.

Practical implications
The authors’ findings imply that the KAMs reporting has the potential to play significant monitoring role in reducing the opportunistic behavior of managers. Hence, KAMs reporting can play a significant role in reducing the agency problem. For regulators, shareholders and corporate managers, the authors’ findings imply that if the audit quality is to be increased, the audit effort should be supported by an appropriate amount of audit fee.

Social implications
The content characteristics of KAMs significantly influence managerial reporting behavior and affect the level of audit efforts.

Originality/value
Unlike developed countries (Gutierrez et al., 2018; Lennox et al. 2022), this study supports that KAMs reporting improves audit quality and control opportunistic behavior of managers in developing countries. The authors show that even though the KAMs disclosure quality is poor, it has the potential to improve financial reporting quality.
Original languageEnglish
Pages (from-to)855-885
Number of pages31
JournalJournal of Accounting in Emerging Economies
Volume14
Issue number4
Early online date4 Sept 2023
DOIs
Publication statusPublished - 10 Jul 2024
Externally publishedYes

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