Are All Auditors the Same? A Topic Analysis of Expanded Audit Reports

Abstract

We investigate whether and how auditor heterogeneity affects key audit matters (KAMs) of auditing and reporting in the expanded audit reports in the United Kingdom. By using hand-collected audit-report data and manual categorization, we first present descriptive evidence of auditors’ heterogeneity on KAM-topic choices and corresponding audit procedures. We then document that, when there is an auditor switch, the incoming auditor tends to change the KAMs and the corresponding audit procedures. In addition, the incoming auditor is more likely to identify new KAMs that are worth audit attention, supporting the notion that auditor change can bring a fresh perspective to the audit. Overall, we find that audit firms are heterogeneous in KAM-topic selection and audit-procedure choices.

Keywords: audit report; topic study; audit procedure; reporting style; KAM