KAM's initial implementation: An analysis of company complexity, financial health, and debt levels

Abstract

This study explores factors influencing KAM disclosures by initial implementation auditors, focusing on companies across diverse sectors listed on an emerging country's stock exchange. The findings highlight that company complexity, financial health, and debt levels significantly shape KAM disclosures. Auditor size, opinions, business continuity risks, firm size, and audit rotation periods had minimal impact. This research offers valuable insights into presenting Key Audit Matters in an emerging country with diverse industries, showing that auditors prioritize firms with intricate structures and robust financial performance, often involving complex transactions that lead to more KAMs. Firms with substantial debts face stricter financial scrutiny, reducing the need for auditors to focus on specific audit areas prone to manipulation. Conversely, auditors are more meticulous with companies holding minimal debt, resulting in more KAMs. These findings underscore the importance of tailored approaches in an emerging market, balancing regulatory costs and benefits to enhance economic stability and investor confidence amidst a diverse industrial landscape. The sample stock exchange encompasses 19 industrial sectors and 662 listed companies.