The auditing profession and the key audit matter reporting requirement

Purpose This study aims to examine the setting of International Standards on Auditing (ISA) 701 on disclosing key audit matters (KAMs) to explore the role of standard setting in maintaining or reconstituting the relationship of the auditing profession with preparers and users of financial reports. Design/methodology/approach This study draws on concepts from the sociology of the professions literature and the regulatory space metaphor. Data comprises comment letters and other documents pertaining to the setting of ISA 701. Findings The study shows that the KAM reporting requirement is part of the ongoing re-calibration of the regulatory arrangements governing auditing, which started in the early 2000s. This study interprets standard setting as a site for negotiating the relationships between linked ecologies in the audit regulatory space, namely, the auditing profession, preparers of financial statements and users of audited reports. This study identifies three processes involved in setting ISA 701, namely, reconstitution of the rules governing auditors' reports as a link between the three ecologies, preserving boundaries between the auditing profession and preparers and negotiation aimed at balancing competing interests of the interrelated ecologies. Originality/value The study offers insights into the role of regulatory rule setting as a central medium through which the adaptive relationship of the profession with its environment is negotiated.