The Effect of Disclosing Key Audit Matters and Accounting Standard Precision on the Audit Expectation Gap

39 Pages Posted: 25 Nov 2019

See all articles by Paul Coram

Paul Coram

University of Adelaide - Business School; Financial Research Network (FIRN)

Leiyu Wang

University of Adelaide, Students

Date Written: November 01, 2019


To try and improve the communicative value of the audit report and therefore help reduce the expectation gap there is a new requirement for auditors to identify and disclose key audit matters (KAMs) in the audit report. This study reports an experiment using non-professional financial report users to investigate the effect of disclosing KAMs on the audit expectation gap. Associated with the relevance of the KAM disclosure is the nature of the matter that the KAM relates to. In relation to accounting matters, an important disclosure issue relates to the level of precision of the accounting standards. This study also explores how differences in precision of accounting standards interacts with the auditor’s reporting of KAMs to affect users’ perceptions. We find that disclosing KAMs per se in the audit report did not affect the audit expectation gap, which is consistent with prior research on the effect of additional disclosures in audit reports. However, the expectation gap actually increased on measures associated with perceptions on the reliability of the audited financial reports when the audit report included a KAM that follows a precise accounting standard, suggesting some potential unintended consequences of this reporting change.

Keywords: key audit matters, critical audit matters, accounting standard precision, audit expecation gap

JEL Classification: M42

Suggested Citation

Coram, Paul J. and Wang, Leiyu, The Effect of Disclosing Key Audit Matters and Accounting Standard Precision on the Audit Expectation Gap (November 01, 2019). Available at SSRN: or

Paul J. Coram (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

Leiyu Wang

University of Adelaide, Students ( email )


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