Purpose This study investigates whether auditor−client geographic proximity (ACGP) affects the key audit matters (KAMs) disclosures in the context of an emerging economy. Design/methodology/approach ACGP is measured using physical distance (kilometers) and travel time (minutes) between head offices, following prior studies, while KAMs are measured based on the quantity and words to explain KAMs disclosures. Data from 465 firm-year observations for the period 2018–2021 are collected and analyzed using panel regression and the results are explained in line with the communication theory. Findings The authors document a significant and negative association between ACGP, and both the number and the extent of KAMs reported. These results are robust to alternative measures of KAMs and ACGP. Geographic proximity between auditors and clients facilitates enhanced communication and provides auditors with an informational advantage, which can reduce perceived client risk and, in turn, lead to fewer and less extensive KAM disclosures. This negative association is particularly pronounced for smaller and lower-risk firms, likely because auditors of these firms face fewer complexities and challenges in assessing risk, allowing them to rely more on proximity-driven information advantages. Practical implications The findings have important implications for boards and audit committees, regulators, investors and other stakeholders, providing guidance to improve decision-making and enhance audit oversight. Originality/value To the best of the authors’ knowledge, this study is the first to examine the relationship between ACGP and KAMs, offering novel insights and extending the existing audit and disclosure literature.
Rahaman et al. (Fri,) studied this question.