Matters may matter: The disclosure of key audit matters in the Middle East

Figures & data

Table 1. Sampling process

	Dubai	Oman	Bahrain	Jordan	Total
Initial Sample	57	124	41	61	283
Missing Data	0	0	2	0	2
Final Sample	57	124	39	61	281
No. of Observations in 4 years	228	496	156	244	1124
Financial (4 years)	31 (124)	47 (188)	22 (88)	27 (108)	127 (508)
Non-Financial (4 years)	26 (104)	77 (308)	17 (68)	34 (136)	154 (616)

Table 2. Variables definition

Type	Code	Proxy Employed
Dependent Variable:
Key Auditing Matters (KAMs)	DKAMs	Dubai Listed Firms’ KAMs Score in percentage
Disclosure Index Approach, is measured in percentage of the level of disclosure.	OKAMs	Oman Listed Firms’ KAMs Score in percentage
	BKAMs	Bahrain Listed Firms’ KAMs Score in percentage
	JKAMs	Jordan Listed Firms’ KAMs Score in percentage
	TKAMs	Overall Listed Firms’ KAMs Score in percentage
Independent Variables:
Firm Size	FSIZ	Natural logarithm of Total Assets
Profitability	PRO	Return on Assets: Dividing net income by total assets
Liquidity	LIQ	Current Ratio: Dividing current assets by current liabilities
Leverage	LEV	Debt Ratio: Dividing total debt by total assets
Audit committee size	AUS	Number of audit committee members
Audit committee financial expertise	AFE	The representation of financial expertise within the committee
Number of audit committee meetings	AUM	Number of committee’s meetings per year
Female representation in the audit committee	AUG	Percentage of female members of the committee
Audit Firm	AUF	1 = Big-4 and 0 = Otherwise
Firm Industry	FIN	1= Financial industry and 0 = Manufacturing and Service

Table 3. Level of KAMs disclosure statistics

KAM No.	Dubai		Oman		Bahrain		Jordan		Total
Panel A: Level of KAMS Disclosed per Country and in Overall (percentage)
	Mean	S.D	Mean	S.D	Mean	S.D	Mean	S.D	Mean	S.D
1	64.6	48.0	68.6	46.6	56.9	49.7	84.1	36.6	70.5	45.6
2	17.4	38.1	40.3	49.3	42.6	49.6	66.7	47.3	44.9	49.8
3	87.8	32.8	76.6	42.5	60.7	49.1	66.1	47.5	72.0	45.0
4	86.1	34.8	51.6	50.2	65.0	47.9	42.1	49.5	58.6	49.3
5	63.2	48.5	67.7	46.9	31.9	46.8	50.3	50.1	53.1	50.0
6	42.6	49.7	37.9	48.7	26.7	44.4	68.9	46.4	47.0	50.0
7	36.5	48.4	49.2	50.2	36.2	48.3	51.9	50.1	44.6	49.7
8	39.1	49.0	46.8	50.1	68.4	46.7	67.2	47.1	56.8	50.1
Overall	54.7	43.7	54.8	48.1	48.6	47.8	62.2	46.8	55.9	48.7
Panel B: Mean of KAMS Disclosed per Country and Sector (percentage)
	F	NF	F	NF	F	NF	F	NF	F	NF
1	77.4	50.0	61.7	72.7	56.1	58.0	85.2	83.3	71.5	69.9
2	21.0	13.5	36.2	42.8	34.4	52.9	88.9	49.0	48.8	41.5
3	83.9	92.3	61.7	85.7	56.1	66.7	80.3	54.9	71.5	72.3
4	90.3	80.8	44.7	55.8	54.6	78.4	54.3	32.4	61.3	56.0
5	79.0	43.1	61.7	71.4	44.6	15.7	67.9	36.3	63.5	43.4
6	33.9	53.9	27.7	44.2	46.2	19.6	67.9	69.6	46.7	47.5
7	38.7	34.6	38.3	55.8	49.3	19.6	67.9	39.2	50.5	39.4
8	32.3	48.1	36.2	53.3	54.6	86.3	84.0	53.9	55.1	58.5
Overall	57.1	52.0	46.0	60.2	49.5	49.7	74.6	52.3	58.6	53.6

Table 4. Descriptive statistics of the variables (N = 1124)

	Panel A: KAMs and Firm Characterises in Overall
Var.	Mean				St.Dev.				Minimum				Maximum
DKAMs	54.7%				43.7%				17.4%				87.8%
OKAMs	54.8%				48.1%				37.9%				76.6%
BKAMs	48.6%				47.8%				26.7%				68.4%
JKAMs	62.2%				46.8%				42.1%				84.1%
TKAMs	55.9%				48.7%				44.6%				72.0%
FSIZ	7.48				1.25				1.96				10.41
PRO	1.88				2.59				−3.79				4.71
LIQ	7.95				4.25				0.01				9.49
LEV	5.77				4.55				−4.58				11.83
AUS	6.52				23.36				5				11
AFE	35.4%				22.3%				15.4%				55.3%
AUM	4.45				24.11				4				7
AUG	20.3%				23.5%				0.0%				34.5%
Panel B: Firm Characteristics per Country
Var.	Dubai (N = 228)				Oman (N = 496)				Bahrain (N = 156)				Jordan (N = 244)
	M	S	Min	Max	M	S	Min	Max	M	S	Min	Max	M	S	Min	Max
FSIZ	8.13	1.15	4.71	10.41	7.59	1.91	4.57	9.40	6.81	1.25	3.38	8.23	6.64	0.84	1.96	8.67
PRO	1.02	1.08	−0.43	3.15	1.03	1.39	−3.79	1.78	0.97	0.81	−0.16	1.56	1.11	1.17	−3.40	4.71
LIQ	3.32	14.38	0.02	3.75	4.71	4.80	0.01	9.49	2.25	2.77	0.01	3.20	1.97	2.32	0.27	2.84
LEV	2.08	3.16	−4.58	5.99	2.77	2.94	−4.67	6.83	2.10	2.18	0.03	5.63	7.91	8.58	−2.60	11.83

Table 5. Descriptive statistics of the two dummy variables (N = 281)

Panel A: Overall
AUF	Audited by Big-4: 202 (71.6%)	Not Audited by Big-4: 79 (28.4%)
FIN	Financial: 127 (45.2%)	Non-Financial 154 (54.8%)
Panel B: per Country
Var.	Dubai (N = 57)		Oman (N = 124)		Bahrain (N = 39)		Jordan (N = 61)
AUF Col. 1: Big4 Col. 2: not Big4	49	8	82	42	31	8	40	21
FIN Col. 1: Financial Col. 2: Non-Financial	31	26	47	77	22	17	27	34

Table 6. Correlation among the variables

Var.	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15
1. DKAMs	1
2. OKAMs	-	1
3. BKAMs	-	-	1
4. JKAMs	-	-	-	1
5. TKAMs	-	-	-	-	1
6. FSIZ	0.242*	0.040	0.174*	0.260	0.237	1
7. PRO	0.152	0.112	0.053	0.240	0.122	0.253	1
8. LIQ	0.231*	0.065	0.256*	0.061	0.097	−0.048*	0.169	1
9. LEV	0.107	0.019	0.287*	0.208	0.223*	0.256	0.241	0.254	1
10. AUS	0.271*	0.110*	0.225	0.224*	0.241*	0.175	0.223	0.136	0.125	1
11. AFE	0.262*	0.265*	0.232*	0.165*	0.098*	0.240*	0.265	0.128	0.220	−0.029*	1
12. AUM	0.110	0.221*	0.253*	0.225*	0.127	0.181	0.160*	0.061	0.238*	0.281	−0.126	1
13.AUG	0.240*	0.021	0.173	0.245	0.217*	0.141	0.260	0.241	0.228*	0.211	0.118	0.413	1
14. AUF	0.233*	0.140	0.235	0.234*	0.241*	0.075	−0.123	0.115*	0.015	0.143	0.173	0.215*	0.133	1
15. FIN	−0.150	−0.121	−0.173	−0.335	−0.127	−0.171	−0.260	0.161	0.208*	0.181	0.318	0.214	0.272	0.114	1

*refers to the significant level at 10%, while ** refers to the significant level at 5%

Table 7. KAMs association results (random effects regression)

	M1: DKAMs	M2:OKAMs	M3:BKAMs	M4:JKAMs	M5:TKAMs
Constant	0.269(0.113)	0.254(0.225)	0.230(0.139)	0.645(0.118)	0.385(0.087)
	0.220	0.269	0.233	0.241	0.234
FSIZ	0.042(0.026)	0.014(0.021)	0.028(0.019)	0.013(0.011)	0.023(0.021)
	0.050**	0.041**	0.025**	0.030**	0.024**
PRO	−0.242(−0.159)	−0.074(0.069)	−0.018(0.018)	−0.004(0.012)	−0.002(−0.003)
	0.031**	0.090*	0.040**	0.013**	0.024**
LIQ	−0.002(−0.001)	−0.002(−.001)	−0.009(0.013)	−0.004(0.016)	−0.005(−0.001)
	0.114	0.869	0.474	0.773	0.228
LEV	0.017(0.029)	0.013(0.003)	0.024(0.017)	0.013(0.011)	0.019(0.015)
	0.035**	0.001***	0.014**	0.021**	0.000***
AUS	0.143(0.123)	0.106(0.131)	0.118(0.135)	−0.113(0.111)	0.117(0.113)
	0.150	0.190	0.135	0.140	0.144
AFE	0.222(0.179)	0.084(0.079)	0.019(0.017)	0.014(0.012)	0.012(0.013)
	0.001***	0.000***	0.045**	0.041**	0.000***
AUM	0.132(0.111)	0.122(.121)	0.119(0.123)	0.114(0.119)	0.114(0.121)
	0.214	0.431	0.374	0.513	0.252
AUG	0.145(0.116)	0.144(0.012)	0.171(0.114)	0.162(0.137)	0.156(0.119)
	0.000***	0.002***	0.004***	0.000***	0.000***
AUF	0.118(0.038)	0.082(0.058)	0.203(0.086)	0.180(0.026)	0.104(0.026)
	0.002***	0.056**	0.020**	0.000***	0.000***
FIN	0.032(0.029)	0.072(0.080)	0.243(0.185)	0.093(0.037)	0.030(0.025)
	0.031**	0.025**	0.008***	0.000***	0.015***
Adjusted R^2	0.275	0.310	0.286	0.423	0336
Year effect	Yes	Yes	Yes	Yes	Yes
Industry effect	Yes	Yes	Yes	Yes	Yes
Breusch and Pagan LM test (prob>chibar2;(P-value))	617.6 (0.001)	633.04 (0.003)	615.9 (0.003)	623.4 (0.003)	636.07 (0.001)
Durbin-Wu-Hausman test (prob>chi2;(P-value))	10.6 (0.001)	12.88 (0.003)	11.05 (0.004)	11.62 (0.014)	13.72 (0.005)
Variance Inflation Factor (all variables)	Less than 2	Less than 2	Less than 2	Less than 2	Less than 2

Note: P-values are in italic. *, ** and *** denotes significance at the 10%, 5% and 1% level respectively.

Table 8. T-test and Chi-Square tests

Model	T-Value	χ2
DKAMs	3.380***	24.761***
OKAMs	4.130***	22.136***
BKAMs	3.011**	20.161**
JKAMs	4.980***	25.481***
TKAMs	6.370***	28.577***

Note: *refers to significant at 5%; *** refers to significant at 1%

Table

Key Auditing Matters Disclosure Index
Symbol	KAMs Statement
KAM1	Matters about areas of higher assessed risks of material misstatement
KAM2	Matters about significant risks identified in accordance with ISA 315 (Internal Control)
KAM3	Significant auditor judgments relating to areas in the financial statements
KAM4	Significant auditor judgments relating to areas in the financial statements that involved significant management judgment/ estimation/ expectations
KAM5	Significant auditor judgments including accounting estimates (Policies) that have been identified as having high estimation uncertainty
KAM6	The effect on the audit of significant events that occurred during the year
KAM7	The effect on the audit of significant transactions occurred during the year
KAM8	Disclose about the major transactions or matters

Source of KAMs Statements is at ISA 701, pp 3–4. This is at IFAC and can be found in the following link: https://www.ifac.org/system/files/publications/files/ISA-701_2.pdf (accessed 7/2/2022).