Trends in the Number of Key Audit Matters Reported

Posted by Jessica McKeon - Aug 27, 2019

This analysis was first posted by Audit Analytics.

As Audit Analytics’ Key Audit Matters (KAMs) database continues to expand, we are noticing some significant trends in the number of KAMs reported in annual reports.

The average number of KAMs reported in 2018 was 2.66 per audit opinion. Interestingly, this number has been trending downward each year since the adoption of KAMs as a standard in Europe. (Note: The average number of KAMs disclosed so far in 2019 is 2.64)

In order to understand which types of companies have a higher number of KAMs, we looked at market cap, market index, and the auditor conducting the audit.

An analysis of the number of KAMs by market cap revealed some interesting results. As shown in the table below, the top 1,000 companies by market cap reporting KAMs in 2018 averaged 3.15 per audit opinion. The middle 1,000 companies decreased by almost one full KAM, averaging 2.3 KAMs per opinion. The bottom 826 companies reported just 1.93 KAMs per opinion, demonstrating that the size of the company may play a factor in the number of KAMs reported.

When looking at market index and the number of KAMs per opinion within a company’s respective index, a trend emerges that is similar to that observed when comparing the number of KAMs per opinion and market cap; the larger the index, the more KAMs are reported per audit opinion.

For example, the FTSE 100 – which is comprised of 100 companies with the highest market cap listed on the LSE – averaged 4.1 KAMs per audit opinion. In comparison, the FTSE 250 – which is comprised of mid-cap companies on the LSE – averaged 2.89 KAMs per audit opinion.

As shown in the graph below, EY reported the highest number of KAMs in 2018 among the Big Four + Grant Thornton and BDO, averaging 2.71 KAMs per audit opinion. Deloitte, PwC, and KPMG each averaged around 2.6, while Grant Thornton and BDO reported the least amounts, with an average of 2.26 and 2.02 KAMs per audit opinion, respectively.

In summary, the Big Four are more likely to report a larger number of KAMs, on average. Market capitalization also seems to be a significant factor contributing to the number of KAMs reported.

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