Does client importance affect key audit matters reporting? New Zealand evidence

Ruoyu Ji, Lina Li, Leonard Leye Li and Gary S. Monroe

Pacific Accounting Review, 2024, vol. 36, issue 3/4, 277-296

Abstract: Purpose - This study aims to examine the relation between a client’s relative economic importance to its auditor and the number of key audit matters (KAMs) reported in the expanded audit report. Design/methodology/approach - The authors measure a client’s economic importance at the audit firm level as well as the audit partner level using the ratio of a client’s total fees to an auditor’s total fees earned from its listed clients and the ratio of a client’s audit fees to an auditor’s total audit fees from its listed clients. The authors estimate a multivariate regression model using a sample of New Zealand-listed company-years from 2017 to 2019. Findings - Results reveal a positive relation between client importance to auditor and the number of KAMs disclosed. Furthermore, the positive association between client importance and the number of KAMs reported is more pronounced for clients audited by the Big 4 auditors and less experienced audit partners. These findings suggest that auditors’ incentive to protect against potential losses from important client engagements outweighs any impairment to auditor independence and leads to a higher number of KAMs reported for the economically more important clients. Overall, the results suggest that auditors report KAMs strategically to mitigate engagement risks. Originality/value - This study provides the first evidence on how client economic importance relates to the disclosure in the expanded audit report and contributes to the dialogue on auditors’ reporting of KAMs in the Asia-Pacific region.

Keywords: Key audit matters (KAMs); Client importance; Audit report; Audit partner; Auditor independence; M42 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:parpps:par-04-2024-0072

DOI: 10.1108/PAR-04-2024-0072

Access Statistics for this article

Pacific Accounting Review is currently edited by Professor Tom Scott, Dr Pei-Chi Kelly Hsiao, Associate Professor Chelsea Liu, Associate Professor Sophia Su, Associate Professor Thu Phuong Truong and Dr Lily Chen

More articles in Pacific Accounting Review from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().