Three questions to Mahmoud Hosseinniakani who defended his thesis "Audit regulation and auditor disclosures" on the 11 May 2020.
My PhD thesis investigates several consequences of a new International Audit standards, called ISA 701, which requires auditor to disclose key audit matters (KAM) in the area of higher assessed risks of material misstatement in financial statements. In four research paper attached to the thesis, I examine the effects of ISA 701 on audit quality, audit fees, capital market, management disclosures of accounting estimates, and real activities management.
The results reveal that inclusion of KAM disclosure (risk related information) in the auditor report have the potential to increase audit quality, audit fees, and to significantly affect the capital market (market liquidity). These effects are found specifically in those European listed firms whose auditors practiced ISA 701 for several years (i.e. auditors of the listed firms in the United Kingdom, Ireland and the Netherlands). Further, the results on Swedish listed firms confirms a significant effect of ISA 701 on management disclosures of critical accounting estimates in those companies that an independent audit committee member exist in the board of directors.
The thesis provides important evidences that informs stakeholders (investors, analysts, regulators, creditors, shareholders and etc.) about the possible costs and benefits of ISA 701 requirement by investigating the aforementioned possible consequences. These consequences are mainly centered on firm’s financial reporting quality and audit quality that are important basis for stakeholders’ decision making. For instance, investors in the capital market can decide about their investment with more confidence when the financial reporting and audit quality increase. Thus, informing the society (investors) to whether these quality measures improved or not, after the introduction of ISA 701, would be an important contribution to their investment that the research can offer. Further, despite that the thesis contribute to the contemporaneous research investigating the consequences of ISA 701 requirement, the results can be also considered by regulators and policy makers for further improvement of the audit regulation and standards.
The defence took place 11 May 2020 at School of Business, Economics and Law, University of Gothenburg.