Key Audit Matters Research Report

Understanding the communicative values and readability of audit reports

We commissioned the University of Auckland to undertake research into reporting practices for key audit matters (KAMs) to assess how the standard is being applied since it was first introduced in 2017. 

Commissioning this work is also driven by a need to understand the overall communicative value of KAM reports. Specifically, whether they can be easily understood and to what extent ‘boilerplate language’ is used. We also know that users find KAMs more useful when they are specific to the entity, so the ability to assess to what degree KAMs are entity specific or more generic is also valuable. Lastly, given the impact of COVID -19, we wanted to be able to have sight of what effect it has had on KAMs. 

We recognise auditors face a number of challenges when describing KAMs. Using concise but informative and accurate language is one such challenge. Avoiding standardised wording and keeping KAMs evolving when in many instances the same KAMs will arise each year is another problem auditors face. 

While the research does identify instances of repeated content, a balance of comparability and entity-specificity in the KAMs is evident. It is also worth noting that some repetition would be expected given many key risk areas are consistent year on year. 

However, the research also found that roughly half of the reports contained KAMs that may not be easily understood by all users. We recognise that KAMs are often about the most complex areas within financial statements, and frequently link directly to content in the financial statements, but we encourage auditors to continue to explore ways to enhance the communicative value and understandability of KAMs. 

We will continue our work to influence international standard setters as the debate on the future of audit continues.  The International Auditing and Assurance Standards Board (IAASB) is currently exploring the auditor’s responsibility in the financial statement audit - specifically with respect to fraud and going concern and we are closely monitoring the IAASB’s thinking and direction in this area. Should they decide to add more information into the auditor’s report, we will be interested to see what impact these will have on the communicative value and understandability of the auditor’s report. 

Download the research report here.

Published: 8 November 2022