It is a balancing act: understanding the key audit matters disclosure in the context of a developing country

What is it about?

We examine the strategies followed by auditors in Bangladesh in identifying and reporting KAMs and factors affecting auditors’ strategies in the identification and disclosures of KAMs. We have conducted and analyzed interviews with audit partners, CFOs and regulators involved in KAM reporting and monitoring using the lens of institutional theory. Auditors have used a decoupling strategy by identifying and reporting greater number of industry generic KAMs than that of comparable other countries in an effort to minimize risks and avoid regulatory scrutiny although they disclose remote risks as KAMs and mask severe problem areas of the client. Due to the principle-based approach of ISA 701, and due to the pressure and misunderstanding from corporate board and audit committee, auditors report industry generic items and descriptions of KAMs. Our findings imply that without the development of audit firm level capability and the corporate governance environment, changes in auditing standards may fulfill the objectives of the standard. Although auditors consider that the KAMs reporting requirements provide them with opportunities to enhance audit profession’s lost legitimacy and public trusts, the actual KAMs reporting practices are driven by the market logic, an urge to maintain the status quo with clients, and eventual rationalization of the impairment of professional independence.

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