TY - JOUR

T1 - Corporate risk disclosure and key audit matters: the egocentric theory

AU - Elmarzouky, Mahmoud

AU - Hussainey, Khaled

AU - Abdelfattah , Tarek

AU - Karim, ATM Enayet

PY - 2022/4/15

Y1 - 2022/4/15

N2 - PurposeThis paper aims to provide unique interdisciplinary research evidence between the risk information disclosed by auditors and the risk information disclosed by corporate managers. In particular, it investigates the association between the level of risk information disclosed by auditors (key audit matters [KAMs]) and the level of corporate narrative risk disclosure.Design/methodology/approachThe study sample consists of the UK FTSE all-share non-financial firms across six financial years. The authors use a computer-aided textual analysis, and the authors use a bag of words to score the sample annual reports.FindingsThe results suggest that KAMs and corporate narrative risk disclosure levels vary across the industries. The authors found a significant positive association between the risk information disclosed by auditors and the risk information disclosed by corporate managers. Also, the authors found that FTSE 100 firms exhibit higher significance between the ongoing concern and the level of narrative risk disclosure.Practical implicationsThe study approach helps assess the level of management risk reporting behaviour due to the new auditor risk reporting standards. This helps to emphasise how auditors and companies engage and communicate risk-related information to stakeholders. Standard setters should suggest a more detailed reporting framework to protect the shareholders. The unique findings are incredibly beneficial to the regulators, standard setters, investors, creditors, suppliers, customers, decision makers and academics.Originality/valueThis paper provides a shred of extraordinary evidence of the impact of auditor risk reporting and management risk reporting. To the best of the authors’ knowledge, no study has yet investigated the corporate narrative disclosure after the new audit standards ISA 700 and ISA 701.

AB - PurposeThis paper aims to provide unique interdisciplinary research evidence between the risk information disclosed by auditors and the risk information disclosed by corporate managers. In particular, it investigates the association between the level of risk information disclosed by auditors (key audit matters [KAMs]) and the level of corporate narrative risk disclosure.Design/methodology/approachThe study sample consists of the UK FTSE all-share non-financial firms across six financial years. The authors use a computer-aided textual analysis, and the authors use a bag of words to score the sample annual reports.FindingsThe results suggest that KAMs and corporate narrative risk disclosure levels vary across the industries. The authors found a significant positive association between the risk information disclosed by auditors and the risk information disclosed by corporate managers. Also, the authors found that FTSE 100 firms exhibit higher significance between the ongoing concern and the level of narrative risk disclosure.Practical implicationsThe study approach helps assess the level of management risk reporting behaviour due to the new auditor risk reporting standards. This helps to emphasise how auditors and companies engage and communicate risk-related information to stakeholders. Standard setters should suggest a more detailed reporting framework to protect the shareholders. The unique findings are incredibly beneficial to the regulators, standard setters, investors, creditors, suppliers, customers, decision makers and academics.Originality/valueThis paper provides a shred of extraordinary evidence of the impact of auditor risk reporting and management risk reporting. To the best of the authors’ knowledge, no study has yet investigated the corporate narrative disclosure after the new audit standards ISA 700 and ISA 701.

U2 - 10.1108/IJAIM-10-2021-0213

DO - 10.1108/IJAIM-10-2021-0213

M3 - Article

VL - 30

SP - 230

EP - 251

JO - International Journal of Accounting and Information Management

JF - International Journal of Accounting and Information Management

SN - 1834-7649

IS - 2

ER -