Audit report lag and key audit matters in Australia

Abstract

We aim to investigate the impact of mandatory key audit matters (KAMs) disclosure on audit report lag (ARL). Additionally, we examine the potential moderating effect of firm size on the association between KAMs and ARL. We conduct Ordinary Least Square regression analyses using a sample of 602 firm-year observations from 2018 to 2020. Our findings indicate that the disclosure of KAMs is associated with a reduction in firm ARL. Furthermore, we find that the association between KAMs and ARL is particularly pronounced in large firms, suggesting that the impact of KAMs disclosure on ARL is more significant in this context. Additionally, our research reveals that the negative association between KAMs disclosure and ARL becomes more prominent when the education level of the audit committee chair is higher. Our findings underscore the importance of transparent reporting through KAMs disclosure and the role of knowledgeable and educated individuals in audit committees in facilitating a more efficient and timely audit process. Also, our finding indicates that the beneficial effect of KAMs may be more noticeable to larger firms.