Key audit matters in the auditor's reports on the example of european mining companies

Abstract

Implementation of changes to the scope of statutory auditor’s reporting has become a starting point to take the issue into consideration in the international literature on possibilities to limit an audit expectation gap i.e. an information expectation gap with regard to an audit. Its partial limitation has become possible owing to a new audit reporting which should be a valuable source of independent information for stakeholders with Key Audit Matters (KAMs). They are the issues most significant while auditing a financial statement of a given company for a current period. The higher number of KAMs revealed by a statutory auditor may suggest a higher number of problem areas in an audited company's activity. This paper aims to determine the factors that influence the number of KAMs that auditors disclose in their audit reports on the financial statements of European mining companies. Sixty-two companies from the mining industry, listed on European stock exchanges and taken into consideration on the ORBIS basis, were taken for the research sample. The content analysis included financial statements and statutory auditors’ reports for the year 2019. The authors formulated the main hypotheses, according to which: The number of KAMs reported in the auditor's reports from auditing the financial statements of mining companies is positively associated with the size of the audited company (H1) and the amount of the audit fee (H2). The research on the practice of KAM reporting allowed to identify the most problematic areas existing in the companies of the mining branch, which include: investments in related entities, property and tangible assets, provisions and contingencies. The verification of the suggested research hypotheses allowed to state that in the case of the companies of the mining sector, the higher number of reported KAMs is not connected with the number of these companies' assets, but the scale of their activity, expressed with the number of incomes. The relationship between the number of KAMs and an amount of an audit fee was also confirmed. The added value of the conducted research of KAM reporting practice is a possibility to use the results in the practice of the activity of mining companies. The review of the most frequent KAMs provides a general opinion on specific problems existing, according to the authors, in companies operating businesses in this branch. The authors notice limitations of the research resulting from the adopted research sample and a need to conduct next studies, which will be connected with the in-depth analysis of the scope and the type of disclosed KAMs as well as their changes in the next reporting periods.