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Article

Factors Influencing Key Audit Matter Reporting in the Stock Exchange of Thailand: Empirical Evidence from 2016–2020 Data

by
Praphada Srisuwan
1,
Trairong Swatdikun
1,
Shubham Pathak
2,
Lidya Primta Surbakti
3 and
Alisara Saramolee
1,*
1
School of Accountancy and Finance, Walailak University, Tha Sala 80160, Thailand
2
Center of Excellence in Sustainable Disaster Management (CESDM), School of Accountancy and Finance, Walailak University, Tha Sala 80160, Thailand
3
Faculty of Economics and Business, Universitas Pembangunan Nasional Veteran Jakarta, Jakarta 12450, Indonesia
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2024, 17(11), 512; https://doi.org/10.3390/jrfm17110512
Submission received: 8 October 2024 / Revised: 4 November 2024 / Accepted: 7 November 2024 / Published: 15 November 2024
(This article belongs to the Special Issue Judgment and Decision-Making Research in Auditing)
Browse Figures
Review Reports Versions Notes

Abstract

:
This study aims to respond to the new auditing standard on the information reporting of Key Audit Matters (KAMs) as a separate section in the auditor’s report, which will increase the transparency and quality of the report. It not only explores the current practice of KAM reporting among Thai listed companies but also seeks factors that influence KAM reporting in Thailand. This study explores the quantitative methodology through secondary data collected from the Thai Stock Exchange. This archival research explores 343 listed companies in the Thai Stock Exchange from 2016 to 2020. Descriptive statistics, a correlation matrix, and regression analysis are employed. The results suggest that the type of auditor (Big 4 or non-Big-4 audit firms), audit fee, audit independence, and industry have a direct positive impact on Key Audit Matter reporting at a 0.05 significance level. However, the evidence also suggests that the presence of females on the board, year, ROA (return on asset), risk, and size were not validated factors that have direct positive impacts on Key Audit Matter reporting at a 0.05 significance level.

1. Introduction

Investors provide the necessary capital for operating a business but do not directly manage the company. Instead, they rely on a board of directors to oversee management and raise concerns when potential risks or inefficiencies arise. The board of directors is further supported by an audit committee, which is responsible for supervising internal auditors. Collectively, the board of directors, audit committee, and internal auditors serve as key internal governance mechanisms aimed at promoting good corporate governance and mitigating business risks. On the other hand, external auditors function as independent third parties, focusing on verifying the accuracy of the company’s financial reports. A new crucial aspect of this external audit process is the disclosure of Key Audit Matters (KAMs), which serve as a tool for auditors to communicate significant issues to external stakeholders, who have increasingly complex expectations. The International Auditing and Assurance Standards Board (IAASB) is making changes to the structure, wording, and content of the auditor’s report, including the inclusion of KAMs for audits of listed entities. It is hoped that the inclusion of KAMs will provide useful information to users of financial statements to enhance their understanding of the matters that, in the auditor’s professional judgment, are of utmost importance in the audit, will enhance users’ understanding of the quality of the audit, particularly if there is an opportunity to further discuss these matters with the audit committee or the auditor, and may be relevant to a better assessment of the quality of the audit (IAASB 2020).
Porumbăcean and Tiron-Tudor (2021) indicate that the expectation of improving communication not only benefits users but also regulators. Thus, the IAASB issued the new auditing standard, ISA 701, “Communicating Key Audit Matters in the Independent Auditor’s Report”, which affects audits of the financial statements of the listed entities for the period ending on or after 15 December 2016 (IAASB 2013). This audit standard is an effort to raise audit quality through transparency. Although audit quality has been considered very important since the Enron scandal in 2001, academics have expressed concern for some time (Petrick and Scherer 2003). In response to the demand for better data on decision making, the regulators required all auditors to reveal useful information on their decision making to investors. This auditing standard marks a new era of auditing information for investors and stakeholders (Rautiainen et al. 2021). Audit reports issued after the adoption of the new reporting requirements for auditing have a higher communication value and, consequently, a higher quality of financial audit engagements (Grosu et al. 2020).
In addition, investors gain greater confidence when auditors disclose KAMs (Moroney et al. 2021), as these provide insights into areas of complexity or high risk that require more auditor attention. By reducing information asymmetry, KAMs highlight crucial financial concerns, enhancing transparency and trust. This improved clarity is expected to make it easier for companies to secure funding, as investors have better gain valuable information; it should also result in a lower cost of capital and easier access to financial resources. The relationship between KAMs and the cost of capital remains unclear, as limited research has directly addressed this topic. Šušak (2020), utilizing data from companies listed on the Zagreb Stock Exchange, found no significant relationship between the number of KAMs and the cost of debt. Conversely, Kamal Metawee et al. (2024) identified a negative correlation between the readability of KAMs and the cost of debt on the Saudi Stock Exchange. In contrast, evidence from the Chinese market suggests that the cost of capital for companies has increased following the adoption of KAMs (Zhou 2019).
KAMs are a newly emerged source of bridging the expectation gap between auditors and stakeholders over asymmetrical information on auditors’ decision making. They appear as part of an audit report, in which auditors communicate their opinions and concerns on the accuracy and completeness of a firm’s financial statement. Recent research shows the adoption of KAMs in the annual financial reporting all over the globe. The inclusion of KAMs, particularly in developing countries, provides an in-depth understanding of the KAM issues reported in the annual reports by the auditors (Rahaman et al. 2023; Xu et al. 2023). Similarly, the adoption of mandatory KAM inclusion in audit reports in the auditing procedure in Thailand in 2016 resulted in appropriate, transparent, and effective decision making and audit reporting.
Stakeholders’ involvement in the implementation and decision-making process is crucial to societal and economic development. Audit reporting becomes crucial in terms of the legitimacy of audit reporting and its repercussions on effective policy and regulation implementations. Firms require the disclosure of KAM issues to achieve the societal and economic requirements (Gray et al. 1995; Lin and Yen 2022; Pinto and Morais 2019). This becomes important in terms of developing countries, such as Thailand, which is a regional leader and exemplary among the Association of Southeast Asian Nations (ASEAN) countries.
A major stakeholder in accounting and financial reporting in Thailand is the Federation of Accounting Profession of Thailand (TFAC), which maintains the quality of international and Thai accounting and financial reporting standards. These standards include the International Financial Reporting Standards (IFRS) (replaced the International Accounting Standards (IAS) in 2001), Generally Accepted Accounting Principles (GAAP), International Standards of Auditing (ISA), International Standard on Quality Control (ISQC), and Thai Financial Reporting Standards (TFRS). Thailand has adopted international standards for financial reporting since joining the ASEAN Economic Community in 2015.
After the enforcement of ISA 701 ‘Communicating Key Audit Matters in the Independent Auditor’s Report’ in 2016 (International Standard on Auditing 2016), there was a large number of international research studies on KAM (also known as critical audit matters: CAM) (Reid et al. 2019) implementation and the impact on the stakeholders of various groups. A study by Velte and Issa (2019) reviewed research related to the impact of KAMs on different stakeholders from 49 empirical studies in several international databases, which divided stakeholders into five groups: (1) shareholders (including investors); (2) debt holders; (3) external auditors; (4) boards of directors; and (5) other stakeholders (e.g., suppliers and customers) (Velte and Issa 2019). The research found that, although there are some indications of a declining income management behavior, most studies found no significant change in auditor behavior (Velte 2020). However, few studies have been dedicated to searching for the factors that are influencing KAMs in this setting (Wuttichindanon and Issarawornrawanich 2020).
From Table 1, it can be seen that there is a lot of research on KAMs in Thailand, focusing on communication and reporting formats (Kitiwong and Srijunpetch 2019; Matheesuwapab 2018; Meechumnan et al. 2019; Intagool et al. 2020; Nuntathanakan et al. 2020; Samakketkarnpol 2019; Parte et al. 2022; Sawangjan and Suttipun 2020), disclosure quality (Kanno and Penwuttikul 2018a; Yarana et al. 2018), impact on stakeholders (Boonyanet and Promsen 2018; Chinpuvadol and Boonyanet 2020; Kamwass et al. 2020), and auditor responsibility (Pratoomsuwan and Yolrabil 2020a, 2020b; Kitiwong and Sarapaivanich 2020). However, there is still a lack of studies on the relationship between firm characteristics and the format and content of KAM, as well as in-depth analysis of the factors that influence KAM reporting, which is a gap in research on this issue in Thailand.
In practice, there are some factors in terms of audit characteristics influencing KAM reporting. This is because the audit characteristics have to work for auditing and reviewing financial statements regarding the content of reported KAMs on the auditor’s reports. agency theory is employed to explain the factors influencing KAM reporting because the corporations are willing to allow external auditors to work on KAM reporting (Hussin et al. 2023; Watts and Zimmerman 1979). In addition, KAM reporting can reduce information asymmetry and conflicts of interest between the corporations and financial statement’s users (Neerapattanakun 2023). However, a prior auditor’s report seems to be difficult for investors to understand, full of jargon, without explanation of what the auditors have to put more effort into or which areas required the most complex auditor judgments. As a result, this new standard has been issued to provide an opportunity for the external auditors to communicate some valuable information with the stakeholders (McKee 2015). Although the existence of KAMs increases the responsibility of the auditors, it may be used to reduce information asymmetry and provide greater transparency in the audit process (Leuz and Wysocki 2016). Nevertheless, this arena is comparatively new among Thai listed companies. Hence, this study reviews the current practice of KAM reporting and examines the impact of factors influencing KAMs among Thai listed firms.
The research explores, analyses, interprets, and recommends effective research on KAM issues in the Thai audit reporting system. The individual research objectives are as follows:
  • To explore the number of KAM issues in the Thai audit report.
  • To understand the related variables with the KAM issues pertaining to the existing literature.
  • To analyze the impact of the selected variables under the second objective on the Thai audit report.
The agency theory demands for auditing services in order to reduce the costs arising from conflicts of interest between owners and managers (Jensen and Meckling 2019; Meckling and Jensen 1976) and the information gap between managers and investors (Boonyanet and Promsen 2018) since managers know more about their private information than the investors (Myers and Majluf 1984). In addition, the lack of shareholder engagement in the audit process also caused an information gap between auditors and other parties. For these reasons, the various regulators and standard setters geared up to execute the new auditor reporting requirements, including ISA 701 ‘Communicating Key Audit Matters in the Independent Auditor’s Report’. Thus, this research proposed H1: There are factors influencing KAM reporting.
The Federation of Accounting Professions in Thailand has adopted TSA 701-KAM, which is expected to reduce information asymmetry and provide greater transparency in the audit process (International Standard on Auditing 2016). According to the ISQC1 assessment, the audit quality of non-Big-4 audit firms (i.e., international firms, local firms) is likely to increase at a higher rate after the adoption of TSA 701-KAM than Big 4 audit firms that already have a high audit quality (Bédard et al. 2019; Khan et al. 2013). However, this study does not make a prediction on the association between types of clients and audit quality after the adoption of TSA 701-KAM because this is a new issue that previous researchers in Thailand have not studied.
The type of auditor can be classified as a proxy variable, such as Big 4 audit firms and non-Big-4 audit firms. The Big 4 audit firms are the largest accounting firms, including Deloitte, Ernst and Young (EY), PricewaterhouseCoopers (PwC), and Klynveld Peat Marwick Goerdeler (KPMG). Big 4 and non-Big-4 audit firms are significantly different in terms of in-service varieties, industry-specific knowledge, experts, and other resources. Big 4 audit firms may be fluent in selecting the most significant matters and disclosing KAMs in a concise and understandable way. Moroney et al. (2021) suggested that investors perceived value in KAM reporting only when non-Big-4 audit firms performed the audit. Specifically, they perceived the high value and reliability of Big 4 audit firms regardless of the number of KAMs reported (Moroney et al. 2021), which is consistent with the first-year result in Thailand (Pratoomsuwan and Yolrabil 2018). Big 4 audit firms in Thailand issued, on average, higher KAMs than non-Big-4 audit firms during 2016–2017 (Wuttichindanon and Issarawornrawanich 2020; Yarana et al. 2018) and in 2017 (Pratoomsuwan and Yolrabil 2018). Suttipun (2022) also found a significant positive relationship between the type of auditor and the number of KAMs reported in Thailand during 2016–2018. This study investigated the level of KAM reporting for a longer period of time, from 2016 until 2020, and we hypothesized H1.1: There is a positive relationship between the type of auditor and KAM reporting.
Audit fees are usually calculated based on the hourly rate of each engagement team member and the time consumed according to the audit complexity and risk of the audit. Audit clients may be unwilling to pay higher audit fees after the regulation change (Abdullatif 2016), but the greater disclosure of KAMs might reflect the greater audit effort and time on the work, which is priced in audit fees (Abdullatif et al. 2023; Baatwah et al. 2022). In accordance with the findings of Nguyen and Kend (2021), both auditors and regulators perceived high cost and time consumption for KAM statements. However, researchers found different results in each country. New Zealand firms faced an increase in audit fees as a cost of the communication value (Al-mulla and Bradbury 2022; Li et al. 2019). Pinto and Morais (2019) also found a positive relationship between the level of KAMs and audit fees as a risk response in Europe. Auditors in Finland perceived the efficiency of KAMs, which helped them to focus on their work and find the control weaknesses of audit clients (Antti Rautiainen et al. 2021). There is no sufficient evidence of an increase in audit fees in the United Kingdom (Gutierrez et al. 2018; Reid et al. 2019) and France (Bédard et al. 2019). Some prior studies found a positive association between KAMs and audit fees in Thailand (Boonlert-U-Thai et al. 2019; Boonlert-U-Thai and Suttipun 2023), even though there is no consensus on this matter. The audit fees must be reasonable according to a large array of risk factors, time occupied, and operational improvement. Thus, this research proposed H1.2: There is a positive relationship between audit fees and KAM reporting.
Females on company boards are an emerging paradigm for governance mechanisms (Amorelli and García-Sánchez 2021; Elmarzouky et al. 2022). Boards (audit committees) with female directors (members) are more likely to demand higher audit quality, with other conditions held constant (Lai et al. 2017). Velte (2018) found a positive relationship between the proportion of females on the board of audit committees and KAM readability (Velte and Issa 2019; Huse and Grethe Solberg 2006). Females are naturally more meticulous and accept a lower level of risk appetite compared to males (Velte 2018). Auditors will disclose more specific and readable information when presenting to female members in the audit committee so they can reduce the number and length of KAMs (Bepari 2023). Thus, this research proposed H1.3: Females on boards have influence on KAM reporting.
As the audit committee is responsible for selecting, monitoring, and overseeing the audit process of external auditors, including issues related to the preparation of financial statements (refer to Figure 1), they deal directly with external auditors, so audit committee and board characteristics have significant effects on audit quality (Suryanto et al. 2017) and may have an effect on KAMs. Audit independence is expected to increase the reliability of financial statements by issuing a professional opinion without bias (Azar and Sahar 2022) and to decrease the number of KAMs because of their negative relationship (Abu and Jaffar 2020). Some countries have set the requirement beyond the new International Standard on Auditing (ISA) ISA 701, such as the regulations in the EU, South Africa, and New Zealand, which have requirements to disclose matters related to the independence of auditors (McGeachy and Arnold 2017; Shao 2020; Sierra-García et al. 2019). Auditor disclosure of managements’ estimation increased audit independence in the user’s view (Doxey 2014), suggesting that the disclosure of KAMs may relate to audit independence. Thus, this research proposed H1.4: Audit independence has an influence on KAM reporting.
Agency theory expects certain characteristics of audit committee influence on Key Audit Matters; thus, this research examines those features. This research provides several expected contributions. Firstly, agency theory may be used to explain the factors influencing KAM reporting in Thailand, the same as in other countries (Litjens et al. 2015). Secondly, financial statement users such as shareholders, investors, and other stakeholders can gain benefits from the association between external auditor characteristics and KAM reporting (Vanstraelen et al. 2012). Thirdly, the regulators and those responsible for setting auditing and financial reporting standards can use the findings of this study when updating and improving the regulations related to audit reports and KAM reporting in the future.
Finally, the results can be used to evaluate the reasons for reporting on the quality and quantity of KAM reporting provided in the audit report and, more generally, in respect to external auditor practices in Thailand. The remainder of this study is divided into four sections. The following section presents the methodology, including the population and sample, data collection and variable measurement, and data analysis, for which the correlation matrix and multiple regression analysis are used. Section 3 and Section 4 provides finding and discussions following this study’s objectives. Finally, this study concludes with a summary, contributions and implications, limitations, and suggestions for future study.

2. Materials and Methods

This archival research is presented, including quantitative data with their characteristics. It explores current KAM reporting in Thai listed companies, also seeking influence factors on the KAM reporting among Thai listed companies. It explores 343 listed companies on the Thai Stock Exchange. The data were hand collected from Stock Exchange of Thailand (SET) Smart database during 2016–2020. Other data were obtained from form 56-1 annual report.
An equation was used in this research as KAMs = α + β1 ∗ Type of Auditor + β2 ∗ Audit fee + β3 ∗ Female on board + β4 ∗ Audit independence + control variables (Year, ROA, Risk, Size, Industry)
where:
KAMs is number of KAM issues reported.
Type of Auditor is dummy variable, given 1 for Big 4 and 0 otherwise
Audit fee is natural logarithm of audit fee (Audit Fees).
Female on board is percentage of female boards to total number of boards.
Audit independence is proportion of autonomous agency to total audit committee.
Once the data of required variables were made available, this research adopted descriptive statistics to gain better understanding of current KAM reporting practices among Thai listed companies. The correlation matrix and multiple regression analysis are carried out seeking influence factors on the KAM reporting among Thai listed companies.
To confirm the accuracy of chosen proxy for each variable, this study adopted the most commonly used, as follows: This study considers the number of KAM issues reported, which is the most cited proxy representing KAMs (Habib et al. 2020). The robustness test was excluded from the data analysis due to following reasons. This study employs a number of dummy variables, given 1 for Big 4 and 0 otherwise, which is the most cited proxy representing type of auditor. This study employs the number of natural logarithms of audit fee, which is the most cited proxy representing audit fee (Knechel and Willekens 2006). This study employs the number of percentages of female board to total number of boards, which is the most cited proxy representing female on board.

3. Results

This research explores KAMs and the factors influencing KAM reporting. It begins with a descriptive analysis on KAM reporting among Thai listed companies. Then, inferential statistics using correlation and regression analysis is reported as hypothesis testing.
The variables defined and used in this research were divided into dependent, independent, and control variables. The dependent variable is KAM issues, and the independent variables include type of auditor, audit fee, females on boards, and audit independence; the control variables comprise year, ROA, risk, size, industry, and KAMs.
Table 2 reveals that the proxy variable discloses that most firms were audited by Big 4 audit firms, with a mean of 87.17% and standard deviation at 0.3349. Regarding the audit fee, on average, companies paid the last year’s audit fee at 15.39, where the natural logarithm ranges between 13.43 and 19.00. As gender is a concern, only 17.38% of females were on boards on average; however, the proportion ranged between 0% and 56%. Furthermore, audit independence was 0.84, but the standard deviation was large scale at 1.4221, while the range spanned between 0.05 and 8.86.
Additionally, the data were obtained from 2016 to 2020 ultimately. The average ROA of these listed companies was 7.583, which ranged from 29.40 to 32.43. The average risk was 0.47, while the size average was 23.97. Industries reported into seven dummies.
Table 3 reveals that auditors reporting of KAM issues has changed over the period. The average KAM issue being reported ranged from 2.09 to 2.28. The number of KAM issues reported ranged from one to four issues in 2016. The widest KAM issue reported ranged from 1 to 10 issues in 2020. However, another interesting aspect from the average issues rose from 2.09 in 2016 to reach the peak at 2.28 in 2017. The issues slightly lessened in 2018 and 2019 continually. The issues were reported as slightly increased in the last two years.
During 2016, when KAMs were first implemented as mandatory, the firms reported a KAM issue span of one to three issues, with a limited number going to the maximum at four issues. The average issue reported is 2.09 issues. During 2017, when KAM was in its second year of mandatory implementation, the firms reported KAM issues spanning from one to three issues, with a limited number but increasing from four firms to eight firms, with the maximum at four issues. The average issue reported is 2.28 issues. The shift clearly took place during 2018; the firms reported KAM issues spanning 1–3 issues, with a limited number reporting only one issue and one firm breaking the record by reaching a new maximum at six issues. The number further shifted, with most of the firms reporting KAM issues spanning 1–3 issues. Another firm topped the record by reaching a new maximum at six issues, with two firms reporting KAM at six issues. The number, once again, further shifted, with most of the firms reporting KAM issues spanning 1–3 issues. One firm made a new record by reaching a new maximum at 10 issues. This provides clear evidence that KAM issues are on the rise among Thai listed companies.
Table 4 reveals that variables are dependent on one another. We checked the correlation between the independent variables to prevent multicollinearity. There is even intercorrelation among year, ROA, size, industry, and audit fee; however, the correlation was below 0.7. This aligned with Ratner (2009), who mentioned that values between 0.3 and 0.7 indicate a moderate positive linear relationship through a fuzzy–firm linear rule (Ratner 2009). Thus, no severe correlation between the independent variables was detected. Thus, multiple regression is possibly performed.
Table 5 adopts the process of performing a regression, confidently determining which factors matter most, which factors can be ignored, and how these factors influence each other. The significance level of this estimation is 0.05 (F = 8.624, p = 0.000), where the adjusted r-square is 0.167. The finding reveals that the type of auditor (p-value = 0.000), audit fee (p-value = 0.000), audit independence (p-value = 0.026) and industry (p-value = 0.002) determine KAM issues with statistical significance at 0.05. Thus, H1.1, H1.2, and H1.4 are accepted. The finding confirms that audit characteristics play a crucial role in KAM reporting.

4. Discussion

The research results provide some implications for the useful information to (1) the top management of listed companies on KAM reporting, (2) regulators who monitor the quality of auditing, and (3) researchers who are entering this arena. KAM refers to issues that auditors deem significant and select from the broader set of items communicated to those charged with governance (IAASB 2020). KAM highlights matters that, from the auditor’s perspective, hold particular importance, enabling management to identify and prioritize these issues accordingly. When such matters are linked to organizational risks, management is prompted to develop strategic responses to mitigate potential impacts on the financial statements. Consequently, KAM serves as valuable information, offering strategic benefits to the organization, which can, in turn, enhance financial statement users’ confidence (Chinpuvadol and Boonyanet 2020) and attract further investment into the company. KAM also reflects the regulators’ objective of enhancing the value of auditors’ communication in their reports by providing more transparent audit information to users of financial statements, thereby improving the overall quality of audit reporting. Similarly, KAM strengthens the existing literature and provides evidentiary support for the applicability of accounting theories. As a relatively new standard, introduced in 2016 with the requirement for a distinct section on Key Audit Matters (KAMs) in audit reports, KAM presents valuable insights for researchers seeking to conduct more in-depth investigations.
The research provided an in-depth analytical approach towards direct and indirect beneficiaries, including the firms, audit reporting system, quality assurance, developmental, and innovative mindset towards the development of the Thai economy as a whole (refer to Figure 2). The beneficiaries would initiate the solving of the KAM issues at the strategical level (audit committee, auditor and shareholder) with effective policy regulations that would enhance the transparency and accountability of the audit reporting system. Similarly, future research and development would enhance the overall quality of the Thai audit reporting system and provide wider implementation of the adequate financial disclosures and strategic management among the firms.
Likewise, the accounting federation has a duty to provide sufficient regulation on information provided and guidelines for the auditory procedures to those who require necessary information for decision making. The shareholders, on the other hand, will know about the authenticity of the information for their investments. The auditor also supplements the KAM issues to solve the asymmetric information among all the stockholders. Fund providers, including lenders, stockholders, and other financial mediators, include financial institutions and capital markets (refer to Figure 3). These strategical approaches could be further implemented in other developing countries in the region.
Although the enforcement of TSA 701 increases the auditor’s responsibilities, it is expected that better KAM reporting can reduce information asymmetry (Myers and Majluf 1984). This research reveals that KAM issues progressively rose during the observation period. Moreover, the type of auditor, audit fee, and audit independence determine KAM issues, with statistical significance at 5%. This research is consistent with Pratoomsuwan and Yolrabil (2018), who also consider the role of the audit firm. The audit fee finding is consistent with Nguyen and Kend’s (2021), in that the audit fee must be reasonable according to a large array of risk factors.
However, this study contradicts Velte (2018) and Bepari (2023), who found a positive relationship between the proportion of females on the board of audit committees and KAM readability. While many studies abroad have found that the number of females on the audit committee affects the number of KAMs, in Thailand, this relationship was not found. This may be due to different regulations and environments. However, the OECD Corporate Governance Factbook (2021) places importance on board diversity and suggests that more women directors may bring independent views to board meetings and have a stronger focus on the monitoring function (OECD Corporate Governance Factbook 2021). As a result, countries try to push for more gender diversity, in the form of changing the law, adjusting criteria, making suggestions, etc.
Furthermore, the audit independence finding is consistent with McGeachy and Arnold (2017) and Doxey (2014).

5. Conclusions

This research not only empirically confirmed agency theory but also provides a practical contribution to managers of listed companies, those researchers who are entering this arena, and the regulators who monitor the quality of auditing. Since stakeholders’ expectations have grown, recent improvements in organizational reporting have focused on enhancing the role of financial auditors and the quality of audit reports, particularly through ISA 701, “Communicating Key Audit Matters in the Independent Auditor’s Report.” Starting with financial statements for periods ending in 2016, standard setters required a distinct section on Key Audit Matters (KAMs) in audit reports to improve the report content and transparency in financial reporting (IAASB 2020).
Furthermore, this research provides theoretical contributions that the type of auditor, audit fee, and audit independence are all determined in KAM reporting as asymmetry information, as expected. The findings reaffirm prior research, underscoring the continued significance of Big 4 firms in the auditing sector. This is particularly evident in their enhanced capacity to report Key Audit Matters (KAMs) compared to non-Big-4 firms. Thus, at the inception of ISA 701 enforcement, Big 4 audit reports may serve as a valuable reference for identifying significant matters and articulating KAMs with greater clarity. Nevertheless, it is essential for management to recognize that the inclusion of KAMs, which offer more insightful information, often correlates with higher audit fees. This increase reflects the additional effort and time required for auditors to assess and communicate critical issues to financial statement users. Additionally, the results indicate that the independence of the audit committee significantly influences KAM reporting. This finding suggests that all stakeholders—including management, shareholders, and professional accounting bodies—should work to strengthen the audit independence of audit committees.
However, due to time limits, this research has limitations regarding the duration that KAMs have been implemented in Thailand. Moreover, the context of legal responsibility for audit results in Thailand lies with the auditor, not the audit firm, which may lead to differences from other countries. The novelty of this research is the exploration of the initial implementation of KAMs in Thailand. Thailand is one of the leaders in the ASEAN region, with neighbouring countries implementing KAMs recently, such as Lao PDR in 2018 and Malaysia in 2016. Therefore, this research paves the way for regional researchers to analyze the implementation of KAMs. Future research could consider other audit characteristics to understand their effect on KAM reporting and compare the findings with other developing countries. Due to the relatively recent implementation of this standard, future research offers valuable opportunities for new insights.

Author Contributions

Conceptualization, P.S., A.S., T.S. and S.P.; methodology, P.S., A.S., T.S. and S.P.; software, P.S. and A.S.; validation, P.S., A.S., T.S. and S.P.; formal analysis, P.S., A.S., T.S. and S.P.; investigation, P.S. and A.S.; resources, P.S., A.S., T.S., S.P. and L.P.S.; data curation, P.S., A.S., T.S. and S.P.; writing—original draft preparation, P.S. and A.S.; writing—review and editing, P.S., A.S., T.S., S.P. and L.P.S.; visualization, P.S. and A.S.; supervision, L.P.S.; project administration, P.S., A.S. and L.P.S. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Data Availability Statement

Data available on request from the corresponding author.

Acknowledgments

The authors would like to thank family, friends and colleagues for supporting the research. The approval IRB certificate number is WUEC-24-326-01 under the research project number WU-EC-AC-2-351-67.

Conflicts of Interest

The authors declare no conflicts of interest.

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Figure 1. Theoretical framework for the research.
Figure 1. Theoretical framework for the research.
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Figure 2. Beneficiary stakeholders from this research.
Figure 2. Beneficiary stakeholders from this research.
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Figure 3. Interrelationships of factors.
Figure 3. Interrelationships of factors.
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Table 1. Overview of empirical research about KAMs and other related information in Thailand.
Table 1. Overview of empirical research about KAMs and other related information in Thailand.
Author(s)ObjectivesMethodologyKey Results
Boonyanet and Promsen (2018)Whether KAMs in new audit reports provide informative value to investors.Performed univariate, correlations, and multivariate regression models with stock prices in 3 periods of analysis of the top 100 Thai listed companies (SET 100) in the Stock Exchange of Thailand.KAMs have little informative value to investors. Also suggest that the KAMs relating to a provision for doubtful debt have a positive and significant relationship to stock prices.
Boonlert-U-Thai and Suttipun (2023)Explore the content of KAMs collected from the listed companies on the SET and examine the effect of auditor and audit committee characteristics on KAMs reporting.KAMs reporting on 200 companies in SET during the years 2017 to 2020 were tested by balanced panel analysis.1.96 issues of KAMs were reported per year on average. They found the positive effect of audit fees, female auditor, the number of audit committee, and meeting frequency on KAMs reporting, while expertise of audit committee has a negative influent on KAMs reporting. There is no effect of audit firm type, auditor’s rotation, and independent audit committee on KAMs reporting.
Chinpuvadol and Boonyanet (2020)Gap on auditing between auditors and financial statements’ users focusing on auditors’ roles and responsibilities, understanding of auditor’s report, auditor independence and auditor’s liability.Survey research using questionnaires as data collection tool. Both descriptive and inferential statistics; Mann-Whitney U Test, are used to analyses the data.Users of the financial statements have higher audit expectations than the auditors in all matters, particularly their understanding of the auditor’s report, including roles and responsibilities of the auditor. Significant difference gap is the understanding of the auditor’s report. Users expected the auditor to disclose the audit method in the auditor’s report. Auditor is likely to issue a material audit to reduce the responsibility of making a material misstatement.
Intagool et al. (2020)Communication value of Key Audit Matters reported in auditor’s report.2 aspects (readability and tone) were considered as communication value by gathering from auditor’s reports and financial statements of companies in service industry listed on The SET during 2015–2017, resulting in 304 observations.The results showed that auditor’s reports with Key Audit Matters was more readable than which without Key Audit Matters. However, the tone of both forms of auditor’s reports is not different.
Kanno and Penwuttikul (2018a)Seeking for a factor concerning auditor towards disclosure quality in KAM and auditor’s report.319 auditors, using both descriptive and inferential statistics.Factor of KAM had resulted in disclosure quality of auditor’s report, the factor of KAM in confidence supply of KAM impacted on disclosure quality.
Kanno and Penwuttikul (2018b)Challenges of auditors’ professionalism towards the changes in the new auditor’s report.Review literatureThe professional auditing of auditor was very crucial and the communication of KAM helped auditor to understand the audited financial statements to make a decision for auditing and expressing ideas on KAM.
Kamwass et al. (2020)Disclosure of KAMs in the auditors’ report and to study the relationship between the disclosure of KAMs and enterprise market value of the Thai listed companies from 2016 to 2017.95 companyKAM was revealed using a schedule rather than a lecture. Revenue recognition is the most frequently reported KAM topic. The most important reason to consider KAM is the complex estimate that is made by management. Relationship between KAMs Disclosure and Market Value showed that disclosure of doubtful debt and confirmation techniques were positive. But disclosing goodwill and inventory impairment was a negative correlation.
Kitiwong and Sarapaivanich (2020)Whether the implementation of the expanded auditor’s report, including the KAMs in Thailand since 2016, has improved audit quality.Examined audit quality two years before and two years after its adoption by analyzing 1519 firm year observations obtained from 312 companies. The authors applied logistic regression analyses to the firm-year observations.It is not clear if the KAM disclosure improves audit quality. This is because auditors put more effort to perform a thorough investigation following the implementation of KAM. The number of disclosed KAMs and the most common types of disclosed KAMs are not associated with audit quality.
Meechumnan et al. (2019)Communication values of KAM of property and construction industrial companies listed on the Stock Exchange of Thailand.2 aspects (readability and tone) were considered as communication value by gathering from financial statements and audit reports (English version) in B.E. 2558–B.E. 2560 of property and construction industrial companies listed on the Stock Exchange of Thailand were analyzed by the Multiple Regression Analysis.The new version of audit report with KAM was easier to read than the old version without KAM. The negative tone of content was much more presented. KAM was the most significant part with high risk according to the judge of auditor. Audit report with KAM reflect quality of audit in the better way, but the communication values in early years and in the later years were not different.
Matheesuwapab (2018)Explore appropriate format of audit report on KAM, techniques of identifying KAM, trend on KAM, and expected benefits to the auditors.119 auditors from Big 4 audit firms.The auditor found difficulties when facing KAM writing. They believe that KAM can improve internal controls. Thus, the auditor feel that the audit risk has been reduced.
Punyaviwat and Boonyanet (2020)Explore the content of KAMs of possible delisting companies and responses to identified risks mentioned in KAMs in auditor’s reports.22 companies (as of 31 December 2019) of the SET. The study uses content analysis based on auditing standards and authors’ experience to scrutinize KAMs information mentioned in auditor’s reports during accounting.KAMs do not indicate whether these companies would be delisted from the stock exchange or not. Each company’s KAMs varies by its inherent risks and environment. Furthermore, no boiler-plate was found to be used to identify KAMs.
Nuntathanakan et al. (2020)Communication value of KAM of companies in industrials group listed on the Stock Exchange of Thailand.Data collected from financial statement during 2015–2017, companies in industrials group listed on the Stock Exchange of Thailand was analyzed by the Multiple Regression Analysis.The audit report with KAM is easier to read than the audit report without KAM. In the meanwhile, the negative tone of content is presented much more in the audit report with KAM than the audit report without KAM. Therefore, the new version of audit report with KAM has more communication values.
Pratoomsuwan and Yolrabil (2020a)The effects of KAM disclosures in auditors’ reports on auditor liability in cases of fraud and error misstatements using evaluators with audit experience.174 professional auditors as participants.Auditors assess higher auditor liability when misstatements are related to errors rather than when they are related to fraud. KAM disclosures reduce auditor liability only in cases of fraud and not in cases of errors. KAM reduces the negative affective reactions of evaluators, which reduce the assessed auditor liability.
Pratoomsuwan and Yolrabil (2020b)Effects of KAM disclosures in the auditor’s report on auditor legal exposure in cases of fraud and error misstatements.133 professional auditors from Big 4 audit firms and 134 MBA students as the participants.The auditors assess higher auditor liability when misstatement relates to error than when it is connected to fraud. KAM reduces assessed auditor liability only in cases of fraud but not of error. For nonprofessional investor, the auditor liability is rated higher in the case of fraud than for error misstatement. KAM have a no significant impact on auditor liability.
Suttipun (2022)Explore the content of KAMs collected from the listed companies on the MAI and examine the relationship between auditors’ characteristics and KAMs reporting.KAMs reporting on 168 companies during the years 2016 to 2018 were tested by content analysis and multiple regression.KAMs were reported 600 words with 1.63 issues per company on average. The KAMs reporting is significantly positively influenced by auditor type and audit fee, while there was no relationship between audit rotation and KAMs reporting.
Yarana et al. (2018)Gather and analyze contents of Key Audit Matters of Thai listed firms, and compare characteristics of KAM in each industry.The KAM data was collected from auditors’ reports which were disclosed on the website of the Stock Exchange of Thailand (SET) from the year 2016 to 2017.The new auditors’ reports from Big 4 audit firms contain more pages than reports from non-Big 4 firms, on average. Top-three rankings of KAM contents during the year 2016 and 2017 are (1) Revenue Recognition, (2) Investment and asset valuation and their impairment, and (3) Inventory Valuation. The most frequently reported KAM contents in each industry are Revenue Recognition.
Table 2. Current KAM reporting among Thai listed companies.
Table 2. Current KAM reporting among Thai listed companies.
MeanStd. DeviationMinimumMaximum
(1) Type of Auditor0.87170.33490.001.00
(2) Audit fee15.39521.067013.4319.00
(3) Female on board0.17380.12770.000.56
(4) Audit independence0.83951.42210.058.86
(5) Year20181.416320162020
(6) ROA7.56836.8383−29.4032.43
(7) Risk0.47150.20850.070.95
(8) Size23.96661.756320.2627.36
(9) Industry3.97672.00721.007.00
Table 3. KAM reporting of given year among Thai listed companies.
Table 3. KAM reporting of given year among Thai listed companies.
KAMs Issue20162017201820192020Total
 1211613192190
 22526353026142
 3191913131680
 44864325
 5000101
 6001214
 10000011
Total6969686968343
Average2.092.282.152.192.192.08
Table 4. Pearson correlation matrix.
Table 4. Pearson correlation matrix.
(1)(2)(3)(4)(5)(6)(7)(8)
(1) Type of Auditor1
(2) Audit fee−0.0691
(3) Female on board−0.114 *−0.376 **1
(4) Audit independence−0.177 **−0.233 **0.296 **1
(5) Year−0.432 **0.139 **0.499 **0.423 **1
(6) ROA−0.278 **−0.0280.379 **0.432 **0.317 **1
(7) Risk0.040−0.0490.0030.079−0.114 *−0.0561
(8) Size−0.251 **0.452 **0.442 **0.132 *0.234 **0.377 **−0.253 **1
(9) KAMs0.0540.317 **0.0240.119 *0.0160.114 *0.234 **0.209 **
*, ** correlation is significant at the 0.05 and 0.01, respectively.
Table 5. Factors influencing KAM reporting among Thai listed companies.
Table 5. Factors influencing KAM reporting among Thai listed companies.
CoefficientsStandard Errort Statp-Value
Intercept−4.4051.275−3.4550.001 **
Type of auditor−0.9340.260−3.5860.000 **
Audit fee0.5780.0975.9280.000 **
Female on board0.7310.4681.5620.119
Audit independence−0.1380.062−2.2300.026 *
Year−0.0330.038−0.8610.390
ROA−0.0140.008−1.6460.101
Risk0.6400.3441.8580.064
Size−0.0850.055−1.5480.123
Industry0.1010.0323.1380.002 **
R2 = 0.189, adjusted R2 = 0.167, F = 8.624, significance F = 0.000. *, ** denotes significant level at the 0.05 and 0.01, respectively.
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MDPI and ACS Style

Srisuwan, P.; Swatdikun, T.; Pathak, S.; Surbakti, L.P.; Saramolee, A. Factors Influencing Key Audit Matter Reporting in the Stock Exchange of Thailand: Empirical Evidence from 2016–2020 Data. J. Risk Financial Manag. 2024, 17, 512. https://doi.org/10.3390/jrfm17110512

AMA Style

Srisuwan P, Swatdikun T, Pathak S, Surbakti LP, Saramolee A. Factors Influencing Key Audit Matter Reporting in the Stock Exchange of Thailand: Empirical Evidence from 2016–2020 Data. Journal of Risk and Financial Management. 2024; 17(11):512. https://doi.org/10.3390/jrfm17110512

Chicago/Turabian Style

Srisuwan, Praphada, Trairong Swatdikun, Shubham Pathak, Lidya Primta Surbakti, and Alisara Saramolee. 2024. "Factors Influencing Key Audit Matter Reporting in the Stock Exchange of Thailand: Empirical Evidence from 2016–2020 Data" Journal of Risk and Financial Management 17, no. 11: 512. https://doi.org/10.3390/jrfm17110512

APA Style

Srisuwan, P., Swatdikun, T., Pathak, S., Surbakti, L. P., & Saramolee, A. (2024). Factors Influencing Key Audit Matter Reporting in the Stock Exchange of Thailand: Empirical Evidence from 2016–2020 Data. Journal of Risk and Financial Management, 17(11), 512. https://doi.org/10.3390/jrfm17110512

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