Disclosure of Key Audit Matters and Market Perception of Audit Quality of Banks in Nigeria

Abstract

The increasing incidence of audit failure has heightened the need for transparency in the exercise of professional judgment and communication of audit findings. This study investigated the effect of disclosure of key audit matters (KAMs) on the audit quality of Nigerian listed banks, as perceived by market participants, using data from 2013 to 2018. The sample consisted of 12 deposit money bank, drawn from a population of fifteen listed banks. The study, grounded on accountability theory and information theory, adopted pre- vs. post-KAM research design, formulated two null hypotheses and tested the hypotheses using multiple linear regression. Findings revealed that the Nigerian market participants did not perceive an increase in audit quality of Nigerian listed banks following the disclosure of KAMs. Also, the study did not record any significant relationship between the number of KAMs disclosed and audit quality, leading to the conclusion that KAMs did not affect the market perception of audit quality in Nigerian banks. The study attributes the results to learning curve, preponderance of unsophisticated and inexperienced investors, absence of successful ligations against auditors, insufficient information intermediaries and shallowness of the stock market. The implication of these findings is that market regulators should device schemes that will enhance the sophistication of market participants in Nigeria.

Keywords

• Key audit matters
• market perception
• audit quality
• accountability theory

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