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It is a balancing act: understanding the key audit matters disclosure in the context of a developing country

It is a balancing act: understanding the key audit matters disclosure in the context of a... This study aims to examine the strategies that auditors in Bangladesh follow in identifying and reporting key audit matters (KAMs). The study also examines the factors affecting auditors’ strategies in the identification and disclosures of KAMs.Design/methodology/approachThe authors have conducted interviews with audit partners, chief financial officers (CFOs) and regulators involved in KAMs reporting and monitoring. The authors have used the lens of institutional theory of coercive, mimetic and normative isomorphism and the concept of decoupling.FindingsAuditors have used a decoupling strategy by identifying and reporting greater number of industry-generic KAMs than that of other countries in an effort to minimize risks and avoid regulatory scrutiny, although they disclose remote risks as KAMs and mask severe problem areas of the client. Because of the principle-based approach of International Standards on Auditing (ISA) 701 and because of the pressure and misunderstanding from the audit committee, auditors report industry-generic items and generic descriptions of KAMs.Practical implicationsThe findings have important implications for the standard setters and local and global audit firms for the diffusion of new auditing standards in different jurisdictions. Without the development of audit firm-level capability and the corporate governance environment, changes in standards may not be effective in achieving the objectives of the standards.Social implicationsAlthough auditors consider that the KAMs reporting requirements provide with opportunities to enhance audit profession’s legitimacy and public trusts, the actual KAMs reporting practices are driven by the market logic, an urge to maintain the status quo with clients and eventual rationalization of the impairment of professional independence.Originality/valueGiven the dearth of prior research on the implementation and diffusion patterns of ISA 701 KAMs reporting, this study fills the gap in the literature. To the best of the authors’ knowledge, this is the first known study to examine auditors’ strategic responses to balance among conflicting priorities in reporting KAMs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting & Organizational Change Emerald Publishing

It is a balancing act: understanding the key audit matters disclosure in the context of a developing country

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References (59)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1832-5912
eISSN
1832-5912
DOI
10.1108/jaoc-09-2022-0131
Publisher site
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Abstract

This study aims to examine the strategies that auditors in Bangladesh follow in identifying and reporting key audit matters (KAMs). The study also examines the factors affecting auditors’ strategies in the identification and disclosures of KAMs.Design/methodology/approachThe authors have conducted interviews with audit partners, chief financial officers (CFOs) and regulators involved in KAMs reporting and monitoring. The authors have used the lens of institutional theory of coercive, mimetic and normative isomorphism and the concept of decoupling.FindingsAuditors have used a decoupling strategy by identifying and reporting greater number of industry-generic KAMs than that of other countries in an effort to minimize risks and avoid regulatory scrutiny, although they disclose remote risks as KAMs and mask severe problem areas of the client. Because of the principle-based approach of International Standards on Auditing (ISA) 701 and because of the pressure and misunderstanding from the audit committee, auditors report industry-generic items and generic descriptions of KAMs.Practical implicationsThe findings have important implications for the standard setters and local and global audit firms for the diffusion of new auditing standards in different jurisdictions. Without the development of audit firm-level capability and the corporate governance environment, changes in standards may not be effective in achieving the objectives of the standards.Social implicationsAlthough auditors consider that the KAMs reporting requirements provide with opportunities to enhance audit profession’s legitimacy and public trusts, the actual KAMs reporting practices are driven by the market logic, an urge to maintain the status quo with clients and eventual rationalization of the impairment of professional independence.Originality/valueGiven the dearth of prior research on the implementation and diffusion patterns of ISA 701 KAMs reporting, this study fills the gap in the literature. To the best of the authors’ knowledge, this is the first known study to examine auditors’ strategic responses to balance among conflicting priorities in reporting KAMs.

Journal

Journal of Accounting & Organizational Change – Emerald Publishing

Published: May 27, 2024

Keywords: Key audit matters; Developing country; Institutional theory; M41; M42

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