Key Audit Matters and Earnings Management: Evidence from Indonesian Manufacturing Firms
Abstract
This study examines the effect of Key Audit Matter (KAM) disclosures on earnings management (EM) among manufacturing firms listed on the Indonesia Stock Exchange (IDX) from 2022 to 2024. Motivated by concerns over the standardized and less informative nature of KAM reporting, the study explores whether disclosure quantity, length, and specificity content of KAM disclosure are associated with EM behavior. Using 227 firm-year observations, the findings reveal that the number and length of KAMs do not significantly affect EM, while greater entity-specific disclosure is negatively associated with earnings management. These findings highlight the importance of enhancing the quality rather than the quantityof KAM disclosures. Practically, the study suggests that regulators and auditors should prioritize the contextual richness of KAM narratives to improve audit transparency and strengthen financial reporting credibility in emerging markets.
This study examines the effect of Key Audit Matter (KAM) disclosures on earnings management (EM) among manufacturing firms listed on the Indonesia Stock Exchange (IDX) from 2022 to 2024. Motivated by concerns over the standardized and less informative nature of KAM reporting, the study explores whether disclosure quantity, length, and specificity content of KAM disclosure are associated with EM behavior. Using 227 firm-year observations, the findings reveal that the number and length of KAMs do not significantly affect EM, while greater entity-specific disclosure is negatively associated with earnings management. These findings highlight the importance of enhancing the quality rather than the quantity of KAM disclosures. Practically, the study suggests that regulators and auditors should prioritize the contextual richness of KAM narratives to improve audit transparency and strengthen financial reporting credibility in emerging markets.
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DOI: https://doi.org/10.24167/jab.v23i2.14365
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