Dissimilarity in Key Audit Matters: Determinants and Consequences

Key Audit Matters (KAMs) provide opportunities to assess qualitative auditor disclosures. Research shows that KAM disclosures become boilerplate over time and auditors exhibit herd behavior in writing them. Using textual analysis, I examine within-industry differences in the wording used by auditors of different companies for disclosures of the same type of KAMs in the same fiscal year. I examine the entire KAM as well as its two components-the risk description and the auditors' response-using three dissimilarity measures capturing client-specific information. I analyze factors related to KAM dissimilarity and its association with audit quality and audit report lag. KAM disclosures are specific to each audit engagement and vary by audit partner. My findings show that KAM dissimilarity is associated with lower audit quality and a longer audit report lag. My results have practical implications for standard-setters as they seek to understand factors related to the content of KAM disclosures.