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Key audit risks and audit procedures during the initial year of the COVID-19 pandemic: an analysis of audit reports 2019-2020

Author

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  • Michael Kend
  • Lan Anh Nguyen

Abstract

Purpose - The purpose of this study is to explore audit procedure disclosures related to key audit risks, during the prior year and the initial year of the COVID-19 outbreak, by reporting on matters published in over 3,000 Australian statutory audit reports during 2019 and 2020. Design/methodology/approach - This study partially uses latent semantic analysis methods to apply textual and readability analyses to external audit reports in Australia. The authors measure the tone of the audit reports using the Loughran and McDonald (2011) approach. Findings - The authors find that 3% of audit procedures undertaken during 2020 were designed to address audit risks associated with the COVID-19 pandemic. As a percentage of total audit procedures undertaken during 2020, the authors find that smaller practitioners reported much less audit procedures related to COVID-19 audit risks than most larger audit firms. Finally, the textual analysis further found differences in the sentiment or tone of words used by different auditors in 2020, but differences in sentiment or tone were not found when 2020 was compared to the prior year 2019. Originality/value - This study provides early evidence on whether auditors designed audit procedures to deal specifically with audit risks that arose due to the COVID-19 pandemic and on the extent and nature of those audit procedures. The study will help policymakers to better understand whether Key Audit Matters provided informational value to investors during a time of global crisis.

Suggested Citation

  • Michael Kend & Lan Anh Nguyen, 2022. "Key audit risks and audit procedures during the initial year of the COVID-19 pandemic: an analysis of audit reports 2019-2020," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 37(7), pages 798-818, January.
  • Handle: RePEc:eme:majpps:maj-07-2021-3225
    DOI: 10.1108/MAJ-07-2021-3225
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    Citations

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    Cited by:

    1. Nicolás Gambetta & Laura Sierra‐García & María Antonia García‐Benau & Josefina Novejarque‐Civera, 2023. "The Informative Value of Key Audit Matters in the Audit Report: Understanding the Impact of the Audit Firm and KAM Type," Australian Accounting Review, CPA Australia, vol. 33(2), pages 114-134, June.
    2. Karen‐Ann M. Dwyer & Niamh M. Brennan & Collette E. Kirwan, 2023. "Auditor Materiality in Expanded Audit Reports: More (Disclosure) is Less," Australian Accounting Review, CPA Australia, vol. 33(1), pages 31-45, March.

    More about this item

    Keywords

    Key audit matters; Audit firms; External audit; COVID-19; External audit; Audit firms; COVID-19; M42;
    All these keywords.

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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