The Effect of Reporting Key Audit Matters on Audit Fees and Financial Reporting Quality: Evidence from Hong Kong

ABSTRACT In 2015, the Hong Kong Institute of Certified Public Accountants issued a standard requiring auditors to communicate key audit matters (KAMs) in report. This provides an opportunity examine effect KAMs on fees and financial reporting quality. Using public companies listed Main Board Stock Exchange as treatment group Shanghai Shenzhen Exchanges control group, pre-post difference-in-differences analyses show that resulted improved quality but also higher fees. Further that, although increase was related risk material statement mis-statements firm business risk, improvement reporting, which occurred for with low quality, from “threat management disclosure KAMs.”