Priscila Dos Santos Fernandes Melo
Master's – Impact of the inclusion of the Key Audit Matters on the audit´s quality and fees of publicly traded companies in Brazil
Advisor: Prof. Dr. Bruno Meirelles Salotti
Comission: Profs. Drs. Guillermo Oscar Braunbeck, Ivam Ricardo Peleias and Lucio Rodrigues Capelletto
Class: 217, FEA-5
This study investigated whether audit quality increased after the modifications implemented by the revised ISA 700, which required the inclusion of items such as Key Audit Matter (KAM), considered more informative to the users of the financial statements. In addition, it investigated whether the costs associated with the audit had any impact due to these new requirements. The verification of possible impacts on audit quality was performed using the quality proxy of the financial statements obtained by estimating: (i) the abnormal absolute accruals by Kothari’s Model (2005) adapted from the Jones’s Model (1991); (ii) abnormal absolute accruals by Dechow and Dichev’s Model (2002); (iii) the quality of accruals revenues of Stubben's Model (2010) and (iv) the percentage of magnitude of the accruals of cash flows of Burgstahler et al. (2006). The KAM could influence the quality of the audit, being more informative to the users of the financial statements and may even influence the less opportunistic management of the results by the administration measured by smaller accruals, although there are results still conflicting in the accounting literature. The quantitative approach in the estimates was made with accounting and market data for publicly traded companies in Brazil, from 2014 to 2017. The sample consisted of 1,554 observations for which the information about the responsible audit firms and the amounts of KAM disclosed that could affect audit quality were collected manually. Most of the regressions, using four accruals metrics, did not show evidence of improvement in audit quality after the adoption of ISA 700. These metrics were analyzed considering: (i) Panel A, which verified the change in audit quality in the comparison of the period before and after adoption of the standard; (ii) Panel B, which included the number of PAAs disclosed and (iii) Panel C, which included the recurring changes in audit firms. For the quality of revenue accruals, it was obtained a positive and significant result was obtained at the 5% level indicating a possible improvement in audit quality, but the explanatory power decreased due to the high correlation identified between the variable of interest and control variable that specifically indicates the amount of KAM disclosed. The audit fees were also manually collected, and did not present statistically significant changes in the comparison of the period before and after the adoption of the new requirements. The present study uses the academic discussions for the Brazilian capital market on the implications of the inclusion of KAM in the audit reports, as well as on the practical effects of the application of the norms issued by the regulatory agencies. In addition, this evidence can help improve standards in the quest for higher audit quality and user-focused financial statements that aims to reduce informational asymmetry about companies' economic reality.
*Abstract provided by the author