| Abstract [eng] |
Relevance of the topic. Lack of transparency in market relations is still a problem today and the audit of financial statements is seen as one of the means to reduce it. The financial scandals resulting from the bankruptcies of multinational corporations have led to a lack of confidence among information users in the information contained in audit reports. The audit sector is characterized by static behaviour, but a recent development – the introduction of International Standard on Auditing 701 “Communicating Key Audit Matters in the Independent Auditor's Report” (International Standard on Auditing 701, Communicating Key Audit Matters in the Independent Auditor's Report, 2015), which requires disclosure of key audit matters in the auditor's report as of 2016, – is the first step after a long time to reduce information asymmetries between audit firms and users of information. The change has led to new research, but only a small number of these focus on the impact on investors' and creditors' choices. As a cheaper source of financing than equity, debt capital is becoming a priority for many companies in their choice of financing method. The disclosure of key audit matters as high risk areas may influence creditors' decisions on the cost of debt. The object of the study is the impact of key audit matters disclosure on debt cost. The purpose of the study is to determine the impact of key audit matters disclosure on debt cost of the companies of the Nasdaq Baltic market. Research methods. Analysis and synthesis of the literature to determine whether there is a relationship between key audit matters disclosure and the cost of debt. Data collection using information available on the Nasdaq Baltic stock exchange. Content analysis of audit reports to convert qualitative information into quantitative information. Descriptive statistics, correlation and regression analysis to process the data. Key findings. The first part of the report provides an overview of research on the impact of key audit matters disclosure on the informativeness of audit report and stakeholder decisions. It is found that key audit matters disclosure reduces information asymmetry and increases market transparency when the information in the key audit matters section is individual to each audited entity. The literature review reveals that the impact of key audit matters disclosure on creditors' decisions has not been fully explored, as the prevailing research has conflicting results. The second part analyses the background to the requirement to disclose key audit matters and identifies the users of audit report information, with a particular focus on creditors. It also analyses the types of key audit matters, the factors that determine the number of key audit matters to be disclosed and develops a conceptual model for a study focusing on the impact of key audit matters disclosure on the cost of debt. The third part develops the methodology of an empirical study to determine the impact of key audit matters disclosure on the cost of debt of the companies of the Nasdaq Baltic market. The fourth part presents results of the empirical study. It is found that audited firms in 2018–2019 are in a worse financial position than in 2021–2022, with more key audit matters being disclosed, but a lower cost of debt. The correlation analysis reveals that there is a weak negative correlation between the cost of debt and the number of key audit matters and the length of the section in 2018–2019 and a weak positive correlation in 2021–2022. A statistically significant relationship between the cost of debt and the number of key audit matters was found only for the period 2021–2022, i.e. a higher number of key audit matters disclosed in the audit report signals a high riskiness of the audited company and leads to a higher cost of debt. A statistically significant relationship between the length of the key audit matters section and the cost of debt is found for both 2018–2019 and 2021–2022. The negative impact on the cost of debt in 2018–2019 is based on the theory examined in the literature review, which suggests that a longer section on key audit matters provides greater assurance to creditors. The positive impact on the cost of debt in the period 2021–2022 reflects a change in creditors' attitudes towards the length of the key audit matters section, treating it as a signal of the borrower's riskiness. The contradictory results of the empirical study point to the need for more detailed studies focusing on the assessment of long-term trends, the application of new research methods and the expression of debt through additional characteristics, i.e. loan size, maturity or collateral. |
