DOES THE REPUTATION OF THE PUBLIC ACCOUNTING FIRM AFFECT THE KEY AUDIT MATTER? Kusharyanti Kusharyanti (a), Sri Astuti (b), Marita (c)
(a,b,c) Department of Accounting, Faculty of Economics and Business, Universitas Pembangunan Nasional ^Veteran^ Yogyakarta, Indonesia
Abstract
This study aims to examine the relationship between the reputation of public accounting firm and key audit matter disclosure. Key Audit Matters (KAM) are defined as ^Those matters that, in the auditor^s professional judgment, were of most significance in the audit of the financial statements of the current period. Key audit matters are selected from matters communicated with those charged with governance. International Audit and Assurance Standards Board issued International Standard on Auditing (ISA) ISA 701, Communicating Key Audit Matters in the Independent Auditor^s Report on January 2015. Indonesia adopted ISA 701 in 2021, effective 1 January 2022. As explained by reputational theory and deep pocket theory, this study proposes the hypothesis that the reputation of audit firm positively affect key audit matter disclosure. Using companies listed on the Indonesia Stock Exchange for the period 2022-2023, this study found that companies audited by audit firm of higher reputation report higher KAM disclosure than those of lower reputation of audit firm. The implication of this research is that audit firm of higher reputation bear litigation risk and reputational cost.
