TY - JOUR
T1 - Disclosure of auditor risk assessments in expanded audit reports
AU - Dwyer, Karen Ann M.
AU - Brennan, Niamh M.
AU - Kirwan, Collette E.
N1 - Publisher Copyright:
© 2023, Karen-Ann M. Dwyer, Niamh M. Brennan and Collette E. Kirwan.
PY - 2023/3/10
Y1 - 2023/3/10
N2 - Purpose: This rich descriptive study examines auditors' client risk assessment (i.e. “key audit matters”/critical audit matters) disclosures in expanded audit reports of 328 Financial Times Stock Exchange (FTSE) 350 companies. The study compares auditor-identified client risks with corporate risk disclosures identified in audit committee reports, in terms of number and type of risks. The research also compares variation in auditor-identified client risks between individual Big 4 audit firms. In addition, the study examines auditor ranking of their client risks disclosed. Design/methodology/approach: The study manually content analyses disclosures in audit reports and audit committee reports of a sample of 328 FTSE-350 companies with 2015 year-ends. Findings: Audit committees identify more risks than auditors (23% more risks). However, auditor-identified client risks and audit-committee-identified risks are similar (80% similar), as are auditor-identified client risks between the individual Big 4 audit firms. Only ten (3%) audit reports rank the importance of auditor-identified client risks. Research limitations/implications: Sample is restricted to one year, one jurisdiction, large-listed companies and companies audited by Big 4 auditors. Practical implications: The study provides important insights for regulators, auditors and users of financial statements by identifying influences on disclosure of auditor-identified client risks. Originality/value: The paper mobilises institutional theory to interpret the findings. The findings suggest that auditor-identified client risks in expanded audit reports may demonstrate mimetic behaviour in terms of similarity with audit-committee-identified risks and similarity between individual Big 4 audit firms. The study provides important insights for regulators, auditors and users of financial statements by identifying influences on disclosure of auditor-identified client risks.
AB - Purpose: This rich descriptive study examines auditors' client risk assessment (i.e. “key audit matters”/critical audit matters) disclosures in expanded audit reports of 328 Financial Times Stock Exchange (FTSE) 350 companies. The study compares auditor-identified client risks with corporate risk disclosures identified in audit committee reports, in terms of number and type of risks. The research also compares variation in auditor-identified client risks between individual Big 4 audit firms. In addition, the study examines auditor ranking of their client risks disclosed. Design/methodology/approach: The study manually content analyses disclosures in audit reports and audit committee reports of a sample of 328 FTSE-350 companies with 2015 year-ends. Findings: Audit committees identify more risks than auditors (23% more risks). However, auditor-identified client risks and audit-committee-identified risks are similar (80% similar), as are auditor-identified client risks between the individual Big 4 audit firms. Only ten (3%) audit reports rank the importance of auditor-identified client risks. Research limitations/implications: Sample is restricted to one year, one jurisdiction, large-listed companies and companies audited by Big 4 auditors. Practical implications: The study provides important insights for regulators, auditors and users of financial statements by identifying influences on disclosure of auditor-identified client risks. Originality/value: The paper mobilises institutional theory to interpret the findings. The findings suggest that auditor-identified client risks in expanded audit reports may demonstrate mimetic behaviour in terms of similarity with audit-committee-identified risks and similarity between individual Big 4 audit firms. The study provides important insights for regulators, auditors and users of financial statements by identifying influences on disclosure of auditor-identified client risks.
KW - Audit-committee-identified risk disclosures
KW - Auditor risk disclosures
KW - Auditor-identified client risk disclosures
KW - Critical audit matters
KW - Expanded audit reports
KW - Key audit matters
UR - http://www.scopus.com/inward/record.url?scp=85150529513&partnerID=8YFLogxK
U2 - 10.1108/JAAR-07-2022-0181
DO - 10.1108/JAAR-07-2022-0181
M3 - Article
AN - SCOPUS:85150529513
SN - 0967-5426
JO - Journal of Applied Accounting Research
JF - Journal of Applied Accounting Research
ER -