Auditor reappointment and repetitive key audit matters: The moderating role of Big 4 in Malaysia

Abstract

This study examines the patterns of repetitive Key Audit Matters (KAM) disclosures and investigates how these trends are influenced by auditor reappointment (audit partner and audit firm) and audit firm brand names (Big 4 vs. non-Big 4) in Malaysia. Using a sample of 654 companies listed on Bursa Malaysia from 2016-2020, representing the first five years of KAM implementation, non-financial data were manually collected from annual reports, and financial data from DataStream. The findings reveal that auditor reappointment is positively associated with repetitive KAM disclosures, suggesting that a long-tenured auditor-client relationship (ACR) may lead to complacency in addressing audit issues. However, the Big 4 audit firms demonstrate a stronger ability to mitigate repetitive KAM, as they are more likely to insist on resolving prior issues. Further analysis shows that auditor rotation, particularly at the partner level, effectively reduces the repetition of KAM. These results provide empirical support for mandatory auditor rotation policies to enhance the quality of KAM disclosures. This study contributes to the existing literature by examining the influence of audit tenure and audit firm brand names on KAM disclosures in Malaysia. These findings have important policy implications for assessing the effectiveness of mandatory auditor rotation in reducing repetitive KAM disclosures. Furthermore, the results highlight the need for regulators to strike an appropriate balance between auditor familiarity and independence when designing and implementing mandatory rotation policies.