Factors Affecting Key Audit Matters Disclosure: Evidence from the Republic of Serbia

Abstract

Research Question: Which factors influence the level of disclosure of Key Audit Matters (KAMs) in the auditors’ reports of companies listed on the Belgrade Stock Exchange (BSE) in the period 2021–2023? Motivation: Auditors’ reports have historically been concise, non-transparent, and limited in informational content, which has generated criticism and dissatisfaction among users of financial statements (Lin & Hwang, 2010; Bedard et al., 2014). With the introduction of ISA 701 in 2015, the IAASB required auditors to communicate KAMs to enhance the transparency and informational value of the report. While studies in developed countries have analyzed the factors influencing KAMs disclosure, research in transition economies such as the Republic of Serbia remains limited (Vuckovic Milutinovic, 2019; Stojanovic, 2025). Idea: To examine the influence of company and audit firm characteristics on the disclosure of KAMs in auditors’ reports of Belgrade Stock Exchange-listed firms, enhancing insights into the informational value and transparency of audit reports in a transitional economy. Independent variables include company size, audit firm size, type, experience, and audit opinion, while the dependent variable is the number of disclosed KAMs. Data: The analysis covered 423 auditors’ reports of 141 companies listed on the regulated BSE market during 2021–2023. Data were collected from the financial statements register of the Serbian Business Registers Agency, including information on companies, auditors, and the type of audit opinion. Tools: Poisson regression analysis was employed to quantify the impact of independent variables on the number of KAMs. Additionally, descriptive analysis of KAMs content and correlation analysis among variables were conducted, with multicollinearity checks performed. Findings: The results demonstrate that higher total assets of the company, longer professional experience of the audit firm, and the issuance of an unmodified audit opinion increase KAMs disclosure. Our findings indicate that the number of KAMs is declining annually and that auditor reporting on KAMs in Serbia is below the level typical of developed economies, which reduces the informational value of audit reports. Contribution: In addition to addressing research gaps in transition economies such as the Republic of Serbia, this study emphasizes the importance of KAMs in auditors’ reports for investors and other stakeholders, offering insights that may contribute to improving audit practices, particularly in emerging markets.