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1. Introduction
Judgement and decision-making research in accounting and auditing focusses on the judgements and decisions of preparers, users and assurance providers of financial and non-financial information (Humphreys and Trotman, 2021). However, the environment in which these judgements are made has changed substantially during the Coronavirus Disease (COVID-19) pandemic (Humphreys and Trotman, 2021). The last major crisis before the COVID-19 pandemic was the global financial crisis (GFC) around 2007–2008 (Hay et al., 2021). External auditors responded appropriately to the GFC, a view supported by several international studies (Xu et al., 2013; Geiger et al., 2014). However, thus far, there is little academic research that has investigated how external auditors have responded to the COVID-19 pandemic. We know little about how changes in the COVID-19 environment have affected audit tasks completed by external auditors, including judgements on what to include in audit reports and the informational value of those reports to investors. Albitar et al. (2020) suggest that the effects of the COVID-19 pandemic will be the toughest challenge for external auditors and their clients since the 2007–2008 GFC.
The aim of the present study is to explore audit procedure disclosures in the audit reports within the Key Audit Matters (KAM) section during the prior year and the initial year of the global COVID-19 pandemic, published in over 3,000 Australian statutory audit reports during 2019 and 2020. The study provides early evidence on whether external auditors designed audit procedures to specifically deal with audit risks that arose due to the COVID-19 pandemic. We compare and analyse the content of all these audit procedure disclosures with the prior year 2019, using textual analysis methods, to investigate whether the tone in the reported KAM disclosures changed during those two years (2019 and 2020) and whether it was different among external auditors during 2020.
In 2017, Australia fully adopted a new form for audit reports with a section termed “Key Audit Matters.” The introduction of KAMs is one of the most significant changes to the audit reporting model in the past 90 years (Coram and Wang, 2020). The purpose of KAMs is to disclose financial reporting risks, thereby enhancing the communication value of the external audit report. KAMs are financial reporting matters that, in the external auditor’s...