Key Audit Matters, Audit Committee Involvement, and Financial Statement Quality: A Comparative Analysis Before and After KAM Disclosure (ABIS Accounting and Business Information Systems Journal)

Summary

• The study covers infrastructure, health and technology companies listed on the Indonesia Stock Exchange in 2022-2023.p.1
• Fraud in financial statements rose from 9.2% in the 2019 ACFE Indonesia survey to 12.2% in the 2025 survey.p.2
• Average KAM counts per IAPI research are highest in health (1.8), infrastructure (1.4) and technology (1.3).p.7
• A total of 256 KAMs were disclosed by 88 companies over 2022 and 2023.p.9
• Revenue recognition is the most disclosed KAM issue at 28%.p.9
• KAM disclosure is positively associated with financial statement quality (p-value 0.0059).p.11
• The Wilcoxon test (p-value 0.3027) finds no significant difference in quality between 2019 and 2020 and between 2022 and 2023.p.11

Key insights

1. KAM disclosure has a positive effect on financial statement quality, with a p-value of 0.0059 and a t-statistic of 2.7893.p.11
2. Audit committee expertise has a significant negative association with financial statement quality, with a p-value of 0.0000 and a t-statistic of 5.4643.p.11
3. The model explaining KAM disclosure has an adjusted R square of 0.6833.p.11
4. Observed KAM disclosures were up to 41% higher than in the IAPI research.p.9
5. The audit committee has no direct authority over the content of KAM disclosure, which is left to the external auditor.p.14
6. Accrual volatility before KAM disclosure is attributed to external factors such as COVID-19 and the implementation of PSAK 109.p.14