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The Effect of Key Audit Matters on Financial Information Quality: The Case of Tunisia

Received: 21 August 2022     Accepted: 13 September 2022     Published: 29 October 2022
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Abstract

This research investigates the impact of Key Audit Matters (KAM) on financial information quality in Tunisian firms. For this reason, we use 52 Tunisian firms for the period 2017-2020. Our GLS and GMM regressions indicate that, in agreement with the agency theory, external auditor has an effective role, as an instrument of monitoring, to prohibit the opportunistic activities of managers. It supervises the manager’s behavior by the disclosure of KAM. Hence, it serves as a crucial tool that contributes to improve financial information quality and to decrease information asymmetry. In addition, it is considered as an important mechanism for preserving trust in financial reporting and integrity of financial information. This study is important for potential investors who should assess KAM when evaluating firms. Furthermore, our results will be useful to companies because they provide evidence that the external auditor can effectively reduce managerial opportunistic behavior and enhance information quality. Finally, they could encourage audit regulators to ameliorate the audit standards.

Published in International Journal of Accounting, Finance and Risk Management (Volume 7, Issue 4)
DOI 10.11648/j.ijafrm.20220704.12
Page(s) 150-156
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2022. Published by Science Publishing Group

Keywords

Key Audit Matters (KAM), Information Quality, Tunisian Firms, Generalized Last Squares

References
[1] Ben Ahmed, F., Salhi, B. and Jarboui, A. (2021), “Corporate governance and earnings forecast accuracy in IPO prospectuses: an empirical analysis”, Journal of Financial Reporting and Accounting, Vol. 19 No. 1, pp. 109-132.
[2] Bisogno, M. and De Luca, R. (2015), “Financial distress and earnings manipulation: Evidence from Italian SMEs”, Journal of Accounting and Finance.
[3] Brahem, E., Depoers, F. and Lakhal, F. (2022), "Corporate social responsibility and earnings quality in family firms", Journal of Applied Accounting Research.
[4] Christensen, B. E., Glover, S. M. and Wolfe, C. J. (2014), “Do critical audit matter paragraphs in the audit report change nonprofessional investors’ decision to invest?” Auditing: A Journal of Practice & Theory, Vol. 33 No. 4, pp. 71-93.
[5] Cohen, J., Krishnamoorthy, G. and Wright, A. (2004), “The corporate governance mosaic and financial reporting quality”, Journal of Accounting Literature, Vol. 23, pp. 87-152.
[6] Dechow, P. M., Sloan, R. G. and Sweeney, A. P. (1995), “Detecting earnings management”, The Accounting Review, Vol. 70 No. 2, pp: 193-225.
[7] Fakhfakh, I., and Jarboui, A. (2021), “The moderating role of audit quality on the relationship between auditor reporting and earnings management: empirical evidence from Tunisia”, EuroMed Journal of Business, Vol. 16 No. 4, pp. 416-430.
[8] Fan, J. P., Rui, O. M. and Zhao, M. (2008), “Public governance and corporate finance: Evidence from corruption cases”, Journal of comparative Economics, Vol. 36 No. 3, pp. 343-364.
[9] Fuller, S. H., Joe, J. R. and Luippold, B. L. (2021), “The Effect of Auditor Reporting Choice and Audit Committee Oversight on Management Financial Disclosures”, The Accounting Review, Vol. 96 No. 6, pp. 239-274.
[10] Gold, A., Heilmann, M., Pott, C., and Rematzki, J. (2020), “Do key audit matters impact financial reporting behavior?” International Journal of Auditing, Vol. 24 No. 2, pp. 232-244.
[11] Hlel, K., Kahloul, I. and Bouzgarrou, H. (2020), “IFRS adoption, corporate governance and management earnings forecasts”, Journal of Financial Reporting and Accounting, Vol. 18 No. 2, pp. 325-342.
[12] Jensen, M. C. and Meckling, W. H. (1976), “Theory of the firm: Managerial behavior, agency costs and ownership structure”, Journal of financial economics, Vol. 3 No. 4, pp. 305-360.
[13] Lin, Z., Jiang, Y. and Xu, Y. (2011), “Do modified audit opinions have economic consequences? Empirical evidence based on financial constraints”, China Journal of Accounting Research, Vol. 4 No. 3, pp. 135-154.
[14] McNichols, F. (2002), “Discussion of the quality of accruals and earnings: The role of accrual estimation errors”, The Accounting Review, Vol. 77 No. s-1, pp. 61-69.
[15] PCAOB Release No. 2017-001, June 1, 2017 (AS 3101: The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion).
[16] PwC. (2017), “Understanding a financial statement audit”. Sirois, L. P., Bédard, J. and Bera, P. (2018), “The informational value of key audit matters in the auditor’s report: Evidence from an eye-tracking study”, Accounting Horizons, Vol. 32 No. 2, pp. 141-162.
[17] Rahaman, M. M., Hossain, M. M., and Bhuiyan, M. B. U. (2022), “Disclosure of key audit matters (KAMs) in financial reporting: evidence from an emerging economy.” Journal of Accounting in Emerging Economies.
[18] Wu, X., Fan, Y. and Yang, Y. (2019), “Do critical audit matters signal higher quality of audited financial information? Evidence from asset impairment”, China Journal of Accounting Studies, Vol. 7 No. 2, pp. 170-183.
Cite This Article
  • APA Style

    Khawla Hlel, Ines Kahloul Nafti. (2022). The Effect of Key Audit Matters on Financial Information Quality: The Case of Tunisia. International Journal of Accounting, Finance and Risk Management, 7(4), 150-156. https://doi.org/10.11648/j.ijafrm.20220704.12

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    ACS Style

    Khawla Hlel; Ines Kahloul Nafti. The Effect of Key Audit Matters on Financial Information Quality: The Case of Tunisia. Int. J. Account. Finance Risk Manag. 2022, 7(4), 150-156. doi: 10.11648/j.ijafrm.20220704.12

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    AMA Style

    Khawla Hlel, Ines Kahloul Nafti. The Effect of Key Audit Matters on Financial Information Quality: The Case of Tunisia. Int J Account Finance Risk Manag. 2022;7(4):150-156. doi: 10.11648/j.ijafrm.20220704.12

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  • @article{10.11648/j.ijafrm.20220704.12,
      author = {Khawla Hlel and Ines Kahloul Nafti},
      title = {The Effect of Key Audit Matters on Financial Information Quality: The Case of Tunisia},
      journal = {International Journal of Accounting, Finance and Risk Management},
      volume = {7},
      number = {4},
      pages = {150-156},
      doi = {10.11648/j.ijafrm.20220704.12},
      url = {https://doi.org/10.11648/j.ijafrm.20220704.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijafrm.20220704.12},
      abstract = {This research investigates the impact of Key Audit Matters (KAM) on financial information quality in Tunisian firms. For this reason, we use 52 Tunisian firms for the period 2017-2020. Our GLS and GMM regressions indicate that, in agreement with the agency theory, external auditor has an effective role, as an instrument of monitoring, to prohibit the opportunistic activities of managers. It supervises the manager’s behavior by the disclosure of KAM. Hence, it serves as a crucial tool that contributes to improve financial information quality and to decrease information asymmetry. In addition, it is considered as an important mechanism for preserving trust in financial reporting and integrity of financial information. This study is important for potential investors who should assess KAM when evaluating firms. Furthermore, our results will be useful to companies because they provide evidence that the external auditor can effectively reduce managerial opportunistic behavior and enhance information quality. Finally, they could encourage audit regulators to ameliorate the audit standards.},
     year = {2022}
    }
    

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  • TY  - JOUR
    T1  - The Effect of Key Audit Matters on Financial Information Quality: The Case of Tunisia
    AU  - Khawla Hlel
    AU  - Ines Kahloul Nafti
    Y1  - 2022/10/29
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    N1  - https://doi.org/10.11648/j.ijafrm.20220704.12
    DO  - 10.11648/j.ijafrm.20220704.12
    T2  - International Journal of Accounting, Finance and Risk Management
    JF  - International Journal of Accounting, Finance and Risk Management
    JO  - International Journal of Accounting, Finance and Risk Management
    SP  - 150
    EP  - 156
    PB  - Science Publishing Group
    SN  - 2578-9376
    UR  - https://doi.org/10.11648/j.ijafrm.20220704.12
    AB  - This research investigates the impact of Key Audit Matters (KAM) on financial information quality in Tunisian firms. For this reason, we use 52 Tunisian firms for the period 2017-2020. Our GLS and GMM regressions indicate that, in agreement with the agency theory, external auditor has an effective role, as an instrument of monitoring, to prohibit the opportunistic activities of managers. It supervises the manager’s behavior by the disclosure of KAM. Hence, it serves as a crucial tool that contributes to improve financial information quality and to decrease information asymmetry. In addition, it is considered as an important mechanism for preserving trust in financial reporting and integrity of financial information. This study is important for potential investors who should assess KAM when evaluating firms. Furthermore, our results will be useful to companies because they provide evidence that the external auditor can effectively reduce managerial opportunistic behavior and enhance information quality. Finally, they could encourage audit regulators to ameliorate the audit standards.
    VL  - 7
    IS  - 4
    ER  - 

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Author Information
  • Department of Accounting and Finance, Faculty of Economics and Management, Sousse University, Sousse, Tunisia

  • Department of Accounting and Finance, Higher Institute of Management, Sousse University, Sousse, Tunisia

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