The Consequences of the Implementation of Key Audit Matters in Audit Reports in Saudi Arabia: A Mixed Methods Approach

Abstract

Abstract The introduction by audit standard setters of key audit matters (KAMs) is one of the most significant changes to the audit reporting model in the past 90 years (Coram and Wang, 2020). This study investigates the effect implementing KAMs on audit reports under ISA701. This study explores how KAMs can help narrow the audit expectations gap (AEG) and enhance audit quality through regulatory intervention, as viewed by key stakeholders in the Kingdom of Saudi Arabia (KSA). The study uses a mixed research method approach that involves both interviews with key stakeholders and content analysis of audit report disclosures. The main findings of interviews indicate that disclosing KAMs in the audit report narrows the AEG between the auditor and users of the audit report but does not improve overall audit quality. Further analysis undertaken by examining the content of 459 KSA audit reports (from 2016 to 2018) determined that auditor workloads increased because of KAM implementation through an increase in the number of pages in the auditor’s report, the number of reported KAMs, and the number of KAM procedures undertaken. The study also reveals that the effects of KAMs on auditor workloads differ between the Big Four and non-Big Four audit firms. Overall, the study contributes to the current scholarly debate about the impact of KAM implementation in audit reporting models. The findings from this study will help to explain the impacts of KAM implementation in other emerging countries with similar auditing and institutional settings to KSA.