The informational relevance of key audit matters

Alves Júnior, Edilson Divino; Galdi, Fernando Caio

doi:10.1590/1808-057x201908910

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Brasil

Revista Contabilidade & Finanças

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Sumário

Original Article • Rev. contab. finanç. 31 (82) • Jan-Apr 2020 • https://doi.org/10.1590/1808-057x201908910 copy

The informational relevance of key audit matters^* * The authors are grateful to the National Council for Scientific and Technological Development (Conselho Nacional de Desenvolvimento Científico e Tecnológico - CNPq) and to the Research Support Foundation of the State of Espírito Santo (Fundação Estadual de Amparo à Pesquisa do Estado do Espírito Santo - Fapes) for their financial assistance to conduct this research.

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

This paper aims to investigate whether the key audit matters (KAMs) contained in the annual standardized financial statements (SFSs) of Brazilian listed companies have contributed with informational relevance for investors. The study fills a gap in the literature by evaluating the Brazilian market’s reaction to the disclosure of the information contained in the KAMs, which became mandatory for listed companies to disclose in their financial statements as of the 2016 fiscal year. The topic under analysis is of practical relevance as the use of KAMs in the independent auditor’s report is growing and expanding to other publicly-held companies in addition to listed ones. This study provides a contribution to the Brazilian capital market regulator (Comissão de Valores Mobiliários - CVM) and the Institute of Independent Auditors of Brazil (Ibracon) regarding understanding the impacts of the new auditor’s report, thus enabling the improvement and expansion of this mechanism. For the analysis, we use the event study methodology, which consists of evaluating how information influences the market in a particular period associated with the occurrence of a disclosure event. To do so, we used the variation in the sum of the daily abnormal returns of each company on the days that form part of the information disclosure window. The results of this paper indicate the consistency of the informative content of the financial statements with KAMs, insofar as the variation in the cumulative abnormal return of the companies analyzed is positively associated with the cumulative returns in the information disclosure window for the SFSs following the adoption of the new independent auditor’s report. Thus, this paper contributes to the literature by presenting empirical evidence of the informational relevance of the content of the new audit report containing KAMs.

Keywords
informational relevance; key audit matters; event study

Category	Type
Assembly	Mandatory
Board meeting	Mandatory
Bylaw	Mandatory
Code of conduct	Mandatory
Communication regarding transaction between related parties	Mandatory
Communication to the market	Partial
Corporate groupings agreement	Mandatory
Corporate events calendar	Voluntary
Credit securitization and amendments term	Mandatory
Debenture deeds and amendments	Mandatory
Dividends policy	Mandatory
Economic-financial data	Mandatory
Information on companies in bankruptcy	Mandatory
Information on companies in judicial and extrajudicial recovery	Mandatory
Information on companies in liquidation	Mandatory
Information on shareholder agreements foreseen in art. 30 (XIX) of CVM Instruction n. 480/2009 (CVM, 2009)	Mandatory
Information provided to foreign exchanges	Voluntary
Notice to debenture holders	Voluntary
Notice to shareholders	Voluntary
Policy for disclosure of relevant acts or facts	Mandatory
Policy for trading company shares	Mandatory
Policy for transactions between related parties	Mandatory
Public offering documents	Mandatory
Registration details of incentivized companies	Mandatory
Relevant fact	Mandatory
Resolution issued by the Central Bank	Mandatory
Risk management policy	Voluntary
Shareholders agreement	Mandatory
Statutory internal regulation of the auditing committee	Mandatory
Stock-based compensation plan	Mandatory
Stock-based compensation plan (except options plan)	Mandatory
Sustainability report	Voluntary
TB - Public takeover bid	Mandatory
Traded and held securities (art. 11 of CVM Instruction n. 358/2002) (CVM, 2002Comissão de Valores Mobiliários (Brazilian Securities and Exchange Commission). (2002). CVM Instruction n. 358, of January 3rd of 2002. Discusses the disclosure and use of information about relevant acts or facts relating to publicly-held companies, regulates the disclosure of information on the trading of securities and acquisition of a significant amount of stocks issued by a publicly-held company, establishes limits and conditions for trading stocks of a publicly-held company pending a relevant fact not disclosed to the market, revokes CVM Instruction n. 31, of February 8th of 1984, CVM Instruction n. 69, of September 8th of 1987, art. 3 of CVM Instruction n. 229, of January 16th of 1995, the single paragraph of art. 13 of CVM Instruction n. 202, of December 6th of 1993, and arts. 3 and 11 of CVM Instruction n. 299, of February 1999, and makes other arrangements. Retrieved from http://www.cvm.gov.br/export/sites/cvm/legislacao/instrucoes/anexos/300/inst358.pdf. http://www.cvm.gov.br/export/sites/cvm/l... )	Mandatory
Unsponsored BDR - Operational description of the program	Voluntary

Information disclosed	QI	SFSs
Balance sheet	Yes	Yes
Cash flow statement	Yes	Yes
Comprehensive income statement	Yes	Yes
Income statement	Yes	Yes
Independent auditors’ report with KAMs	No	Yes
Statement of added value	Yes	Yes
Statement of changes in net equity	Yes	Yes

Variables	Description
$△ {C a r}_{i,t}^{YEAR}$	Variation in the annual abnormal return between the periods (2017, 2016, and 2015)
${△ C a r}_{i, t 0}^{S F S}$	Variation in the annual abnormal return between the periods (2017, 2016, and 2015) in the disclosure window for the standardized financial statement on date t0
${△ C a r}_{i, t 1}^{Q I Q 1}$	Variation in the annual abnormal return between the periods (2017, 2016, and 2015) in the window in which there was disclosure of the QI relating to the first quarter on date t1
${△ C a r}_{i, t 2}^{Q I Q 2}$	Variation in the annual abnormal return between the periods (2017, 2016, and 2015) in the window in which there was disclosure of the QI relating to the second quarter on date t2
${△ C a r}_{i, t 3}^{Q I Q 3}$	Variation in the annual abnormal return between the periods (2017, 2016, and 2015) in the window in which there was disclosure of the QI relating to the third quarter on date t3
${△ C a r}_{i}^{O D}$	Variation in the abnormal return in the window in which there was disclosure of the mandatory information, as according to the classification established in Table 1
${△ C a r}_{i}^{V D}$	Variation in the abnormal return in the window in which there was disclosure of the voluntary information, as according to the classification established in Table 1
$△ R o a$	Variation in the return on assets between the periods (2017, 2016, and 2015)
$△ S u r p_e a r$	Variation in the earnings surprise between the periods (2017, 2016, and 2015). The earnings forecast presented in the previous period in comparison with the earnings of the current period was considered
$△ l n_m v$	Variation in the company’s market value between the periods (2017, 2016, and 2015)

Description	Stocks
Companies listed on the Brasil, Bolsa, Balcão (B3)	1,271
Canceled companies	694
Total database	577
Exclusion of the company classes with the least movement	263
Database for the analysis	314

Description	2015	2016	2017
Database for analysis	314	314	314
Stocks that were not traded in the SFS or QI disclosure window	69	76	76
Stocks that were not traded in the whole period	30	27	32
Companies with no market value	49	47	56
Companies that did not disclose earnings in one of the periods used to calculate the earnings surprise variable	17	17	34
Companies that did not present one of the variables in one of the periods, making it impossible to calculate the variation in the variables	18	16	22
Observations	131	131	94

Variable	Obs.	Mean	Median	Stand. deviation	1^st Quartile	3^rd Quartile
$△ {C a r}_{i,t}^{YEAR} (%)$	225	34.83	28.60	88.65	-7.01	70.42
${△ C a r}_{i, t}^{S F S} (%)$	225	-0.53	-0.65	8.64	-5.76	3.84
${△ C a r}_{}^{V D} (%)$	225	6.15	3.19	37.52	-11.23	20.14
${△ C a r}_{}^{O D} (%)$	225	15.95	8.82	73.76	-17.44	43.82
${△ C a r}_{i, t}^{Q I Q 1} (%)$	225	0.61	0.37	9.26	-3.96	5.10
${△ C a r}_{i, t}^{Q I Q 2 (%)}$	225	1.43	0.79	8.64	-3.42	6.55
${△ C a r}_{i, t}^{Q I Q 3 (%)}$	225	-1.36	-0.06	9.24	-6.46	4.17
$△ S u r p_e a r (%)$	225	0.96	0.05	28.69	-0.63	1.49
$△ E a r_d u m m y$	225	-0.03	0.00	0.49	0.00	0.00
$△ r o a (%)$	225	0.24	-0.10	14.86	-2.60	2.00
$△ l n_M v$	225	0.30	0.26	0.46	0.06	0.51

	△Car^YEAR	△Car^SFS	△Car^VD	△Car^OD	△Car^QIQ1	△Car^QIQ2	△Car^QIQ3	△Surp_ ear	△Ear_ dummy	△roa	△ln_MV
△Car^YEAR	1.000
△Car^SFS	0.292	1.000
△Car^VD	0.307	-0.062	1.000
△Car^OD	0.632	0.082	0.443	1.000
△Car^QIQ1	0.316	0.094	0.076	0.099	1.000
△Car^QIQ2	0.378	0.044	0.100	0.317	0.194	1.000
△Car^QIQ3	0.087	0.088	0.131	0.085	0.031	-0.029	1.000
△Surp_ ear	0.224	0.111	0.033	0.092	0.149	0.129	-0.051	1.000
△Ear_ dummy	0.043	-0.033	0.131	0.032	0.021	-0.011	-0.020	0.122	1.000
△roa	0.164	0.087	0.197	0.225	-0.007	0.051	0.160	0.108	0.413	1.000
△ln_MV	0.314	-0.101	0.293	0.259	-0.007	0.037	0.126	0.068	0.134	0.118	1.000

Dep. variable ${△ C a r}_{i, t}^{A N O}$	Coefficient	Robust standard error	t	p>\|t\|	CI95%
Constant	11.66**	4.37	2.67	0.01	3.06	20.27
${△ C a r}_{i, t}^{S F S} (%)$	2.44***	0.41	5.97	0.00	1.63	3.24
${△ C a r}_{0}^{V D} (%)$	0.05	0.15	0.31	0.76	-0.26	0.35
${△ C a r}_{0}^{O D (%)}$	0.57***	0.07	8.13	0.00	0.43	0.71
${△ C a r}_{i, t}^{Q I Q 1 (%)}$	1.94**	0.70	2.79	0.01	0.57	3.32
${△ C a r}_{i, t}^{Q I Q 2} (%)$	1.61*	0.89	1.82	0.07	-0.14	3.35
${△ C a r}_{i, t}^{Q I Q 3} (%)$	0.01	0.60	0.02	0.98	-1.17	1.20
△Surp_ear (%)	0.28	0.23	1.2	0.23	-0.18	0.73
△Ear_dummy	-0.98	9.96	-0.1	0.92	-20.61	18.65
△roa (%)	-0.03	0.42	-0.08	0.94	-0.86	0.80
△ln_VM	38.20**	17.01	2.25	0.03	4.67	71.72
Adj. R² (%)	58.12
F-Stat	32.67
Obs.	225

Dep. var.: $△ {C a r}_{i,t}^{YEAR}$	2016-2015		2017-2016
Dep. var.: $△ {C a r}_{i,t}^{YEAR}$	Coefficient	p-value	Coefficient	p-value
${△ C a r}_{i, t 0}^{S F S}$	2.42***	0.00	2,09***	0,00
${△ C a r}_{i, t 1}^{Q I Q 1}$	0.02	0.72	0.13	0.41
${△ C a r}_{i, t 2}^{Q I Q 2}$	0.62***	0.00	0.37***	0.00
${△ C a r}_{i, t 3}^{Q I Q 3}$	2.52***	0.00	0.98	0.11
${△ C a r}_{i}^{O D}$	2.35**	0.04	-0.24	0.62
${△ C a r}_{i}^{V D}$	-0.01	0.99	1.21**	0.02
△Surp_ear (%)	0.24	0.99	-0.01	0.99
△Ear_dummy	0.98	0.94	17.86**	0.07
△roa (%)	0.075	0.87	-1.21***	0.00
△ln_MV	34.12	0.28	48.01***	0.00
Constant	18.38***	0.00	-5.95	0.291
Adj. R² (%)	63.79		55.74
F-Stat	28.63		11.92
Obs.	131		94

Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade, Departamento de Contabilidade e Atuária Av. Prof. Luciano Gualberto, 908 - prédio 3 - sala 118, 05508 - 010 São Paulo - SP - Brasil, Tel.: (55 11) 2648-6320, Tel.: (55 11) 2648-6321, Fax: (55 11) 3813-0120 - São Paulo - SP - Brazil
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