Key audit matters: did IAASB unravel the knots of confusion in audit reports decisions?

Purpose - This study aims to investigate how external auditors properly classify the requirements of ISA 701 for key audit matters (KAM) compared with an emphasis of matter or other matters (EOM) in ISA 706 and going concern (GC) in ISAs 706 and 570. Such investigation is important to assess whether the explanatory matters included in ISAs 701, 706 and 570 are appropriate for external auditors so they can properly classify identified audit matters as either KAM, EOM or GC matters and considering the relationship among them. Design/methodology/approach - The research used questionnaires sent to a sample of external auditors in five audit firms with international affiliations including two of the Big 4 audit firms. The Z-test for two proportions is conducted to assess whether external auditors were confused when interpreting the explanatory matters included in the ISAs. Findings - The research suggests that the current ISA 701 explanations may not adequately help some auditors in their aim of properly identifying all KAM from among the different matters they reach during their audit. When classifying EOM and GC, most of the external auditors misclassified them as KAM. Practical implications - This is a timely study. The results have implications for standard setters and regulators through revising the explanations included in the different audit reporting standards including ISA 701 and considering the relationships among them. Originality/value - According to the authors' knowledge, this study is considered among the first that surveyed the appropriateness of the explanations included in ISAs for KAM, EOM, GC and how auditors perceive such explanations when forming their opinion about their clients' financial statements.