The Relationship of Audit Firms’ Attributes and the Readability of Key Audit Matters With Auditees’ Corporate Governance as a Mediating Factor

This study is aimed at analyzing the influence of audit firms’ attributes (reputation, audit fees, and auditor gender) on the readability of key audit matters disclosed in the audit report. It also attempts to examine the mediating role of the audit committee in the relationship between audit firms’ attributes and the readability of key audit matters disclosure. This study uses a quantitative approach with a sample of 50 public companies listed in the Indonesian Stock Exchange, which are included as the top 50 public companies with the highest market capitalization. Data were analysed using the Preacher-Hayes test for the simple mediation model. Results of this study indicate that audit firms’ reputation has a negative effect on the readability of key audit matters. Specifically, the Big 4 accounting firms tend to produce key audit matters disclosure with low readability. They also motivate the company’s governance to function well. However, the auditor’s gender does not affect the readability of key audit matters and the company’s governance. While audit fees have a negative influence on key audit matters’ readability and the company’s governance, which is not in line with the prediction of our study. This finding indicates that although large audit fees are associated with better audit quality, but do not always result in easy-to-understand key audit matters disclosures. The role of the Audit Committee as an internal governance mechanism is also proven as not fully capable of encouraging communicative information disclosure. The implications of this study encourage investors to pay more attention to the reputation when hiring a public accounting firm. In addition, in the absence of good governance, stringent regulations need to be developed by the government to ensure the quality of disclosures.