Audit Quality through KAMs: A Pathway to More Conservative and Reliable Financial Reporting

This paper studies the association between accounting conservatism as a proxy of reliable and credible financial reporting with the audit quality in Malaysia during COVID-19 pandemic. We explore the effect of audit quality, captured as Key Audit Matters (KAMs), on accounting conservatism by using the C-Score as a proxy, and a sample of 736 listed companies on Bursa Malaysia. We find that audit assurance is positively associated with accounting conservatism, although at a negligible margin of statistical significance. We also find that firm size and profitability are significant determinants of accounting conservatism, while industry classification and leverage have no effect. We find that the relationship between audit assurance and accounting conservatism is complex, and future studies should use multiple measures of audit quality to uncover the effects of audit quality on financial reporting. This study contributes to the continuing debate on the effect of audit assurance in enhancing high quality financial reporting, in a period of uncertainty and crisis.