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1. Introduction
The day 15 December 2016 marked a significant shift in the South African audit environment (Segal, 2017), as this marked the day from which auditors of the Johannesburg Stock Exchange-listed (JSE-listed) entities are required to produce an explanatory addendum to their audit opinion known as the key audit matters (KAM) report. This was the first time auditors were required to disclose what the key audit issues were (IAASB, 2015) and how the audit firm satisfied itself as to the validity, accuracy and completeness of these audit matters (Sirois et al., 2018).
An audit opinion provides reasonable assurance that the annual financial statements (AFS) of an entity are fairly presented in all material respects. The KAM requirement applies even in the event of an unmodified or “clean” audit opinion being issued. In a sense, at the discretion of the audit partner and firm, a type of yes/no or pass/fail opinion is given on the organisation (Francis, 2004; Carcello, 2012; Segal, 2017). Although it does not certify 100 per cent factual correctness, a clean audit report concludes that fair presentation with no material misstatement has been made (Hayes et al., 2014). As a result of KAM, auditors will, in a sense, be required to justify and potentially corroborate their opinion and explain their findings (Cordos and Fulop, 2015). Significantly, the onus of determining and reporting on what matters are deemed to be key, rests with the auditor. The auditor bears responsibility for the consequences, both intended and unintended, of the report being in the public domain.
This research explores the effect of the legislative reporting changes of KAM on auditors and audit firms in the South African auditing environment. The objective of the study is to understand the impact KAM has had on the auditor from the auditor’s perspective. Studies have been performed in a European context (Cordos and Fulop, 2015; Köhler et al., 2016) where the focus was on the potential impact to investors and the market, yet no research on the impact that the new reporting framework had had on auditors, a key stakeholder in the audit relationship, has been performed. The contribution of this research is to examine the impact of the new audit reporting requirements on both the...