The informational relevance of key audit matters

Edilson Divino Alves Júnior · Fernando Caio Galdi

31 citations0/0 files storedRevista Contabilidade & Finanças

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Auditing, Earnings Management, Governance Corporate Governance and Financial Management Financial Reporting and XBRL

Abstract

ABSTRACT This paper aims to investigate whether the key audit matters (KAMs) contained in the annual standardized financial statements (SFSs) of Brazilian listed companies have contributed with informational relevance for investors. The study fills a gap in the literature by evaluating the Brazilian market’s reaction to the disclosure of the information contained in the KAMs, which became mandatory for listed companies to disclose in their financial statements as of the 2016 fiscal year. The topic under analysis is of practical relevance as the use of KAMs in the independent auditor’s report is growing and expanding to other publicly-held companies in addition to listed ones. This study provides a contribution to the Brazilian capital market regulator (Comissão de Valores Mobiliários - CVM) and the Institute of Independent Auditors of Brazil (Ibracon) regarding understanding the impacts of the new auditor’s report, thus enabling the improvement and expansion of this mechanism. For the analysis, we use the event study methodology, which consists of evaluating how information influences the market in a particular period associated with the occurrence of a disclosure event. To do so, we used the variation in the sum of the daily abnormal returns of each company on the days that form part of the information disclosure window. The results of this paper indicate the consistency of the informative content of the financial statements with KAMs, insofar as the variation in the cumulative abnormal return of the companies analyzed is positively associated with the cumulative returns in the information disclosure window for the SFSs following the adoption of the new independent auditor’s report. Thus, this paper contributes to the literature by presenting empirical evidence of the informational relevance of the content of the new audit report containing KAMs.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 2014A review of archival auditing research 2010The financial reporting environment: Review of the recent literature 2001Essays on disclosure 2005Auditor Tenure and Perceptions of Audit Quality 2007How disclosure quality affects the level of information asymmetry 2005Teoria da contabilidade: uma nova abordagem

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2024Key audit matters: a systematic review

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