Costs and Benefits of Key Audit Matter Reporting for Smaller Public Entities: The Australian Experience

The purpose of this analysis is to gather evidence regarding the costs and benefits of key audit matter (KAM) reporting for smaller public entities. We examined 362 Australian listed entities with year ends between December 15, 2016 and December 15, 2017 and with market capitalization of less than AUD$10 million. We found no significant impact on audit fees with the introduction of KAM reporting for the entities examined. We also found that KAM reporting provided an effective ‘signal’ to readers of the key audit issues that arose. However, in certain situations, we found that KAM reporting did not provide ‘transparency’ about those key audit issues. Based on the Australian experience, we conclude that there is value to KAM reporting by smaller listed entities and that the value could be increased if KAM reporting were more transparent.