Does KAM disclosure make a difference in emerging markets? An investigation into audit fees and report lag

Purpose: This study investigates the consequences of the key audit matter (KAM) disclosure requirement by considering two salient audit proxies: audit fees and audit report lag. This investigation is relevant because most auditors worldwide are required to expand their audit report including discussion on key matters faced in the audit engagement. However, the emerging literature on the implications of KAM is inconclusive. Design/methodology/approach: Using a distinctive dataset of 601 year-observations for firms listed on the Omani capital market over 2012–2019, this study employs pooled panel data regression with robust standard error. Findings: Results indicate that auditors increased their fees considerably during the period of KAM but substantially shortened audit report lag. Conversely, using the KAM period as a sample, the authors find marginal or insignificant evidence for the effect of the number of KAM on both proxies. In additional analyses, this study shows that entity-level risk KAM is associated with higher fees and shorter audit report lag, while KAM related to account-level risk does not have the same effect. Interestingly, it is observed that KAM disclosure is strongly associated with higher fees and high-quality audit even when the auditors issue their report in a shorter time. Originality/value: This study contributes to the limited research examining the consequences of KAM in emerging markets. It is also the first to show that KAM is associated with shorter audit report lag.