This study investigates the interaction between audit firms and key audit matters (KAMs) to measure their impact on financial reporting quality in Palestine, thereby enriching the discourse on financial reporting. A descriptive statistical method was used to analyze the audit reports of listed Palestinian firms from 2018 to 2022. A methodology that scrutinizes the clarity and informativeness of KAMs across different audit firms and KAM types, the research investigates how audit procedures and risk assessments contribute to the comprehensibility of KAM disclosures. The findings highlight a significant disparity in the readability of KAMs attributable to audit firm selection, with the non-Big Four firms exhibiting distinct approaches. This understanding, gathered through multivariate analysis, offers valuable contributions to the ongoing discourse on financial reporting quality, emphasizing the essential role of audit firms in shaping the effectiveness of audit reports and KAM disclosures.

1. Ajina, A., Laouiti, M., & Msolli, B. (2016). Guiding through the Fog: Does annual report readability reveal earnings management? Research in International Business and Finance, 38, 509–516. https://doi.org/10.1016/j.ribaf.2016.07.021
2. Al Lawati, H., & Hussainey, K. (2022). The Determinants and Impact of Key Audit Matters Disclosure in the Auditor’s Report. International Journal of Financial Studies, 10(4). https://doi.org/10.3390/ijfs10040107
3. Al-Absy, M. S. M., Al-Dhamari, R., Al-Wesabi, H. A. H., et al. (2024). Are country-level political uncertainty and power distance important to the CSR-audit report lag nexus? Evidence from the GCC region. Journal of Sustainable Finance & Investment, 0(0), 1–33. https://doi.org/10.1080/20430795.2024.2306511
4. Alia, M. A., Dwekat, A., Ismail, T., et al. (2024). CSRD in the Arab World: The Role of Audit Quality. In: Musleh Al-Sartawi, A. M. A., & Nour, A. I. (editors), Artificial Intelligence and Economic Sustainability in the Era of Industrial Revolution 5.0. Springer Nature Switzerland. pp. 123–135. https://doi.org/10.1007/978-3-031-56586-1_9
5. Alslaibi, N., & Abdalkarim, N. (2024). The Power of ESG Factors in Driving Financial Growth—Insights from Palestine. ResearchGate. https://doi.org/10.21203/rs.3.rs-4276019/v1
6. Aschauer, E., & Quick, R. (2024). Implementing shared service centres in Big 4 audit firms: An exploratory study guided by institutional theory. Accounting, Auditing & Accountability Journal, 37(9), 1–28. https://doi.org/10.1108/AAAJ-07-2021-5376
7. Barakat, F. S. Q. (2016). Corporate transparency and CSR policies in developing countries: The case of listed companies in Palestine and Jordan. Available online: https://digibug.ugr.es/handle/10481/40157 (accessed on 2 June 2023).
8. Barghathi, Y., Collison, D., & Crawford, L. (2018). Earnings management and audit quality: Stakeholders’ perceptions. Journal of Management and Governance, 22(3), 629–659. https://doi.org/10.1007/s10997-017-9396-2
9. Bendickson, J., Muldoon, J., Liguori, E. W., et al. (2016). Agency theory: Background and epistemology. Journal of Management History, 22(4), 437–449. https://doi.org/10.1108/JMH-06-2016-0028
10. Berle, A. A., & Means, G. C. (2009). From The Modern Corporation and Private Property. In: Kroszner, R. S., & Putterman, L. (editors), The Economic Nature of the Firm, 3rd ed. Cambridge University Press. pp. 58–62. https://doi.org/10.1017/CBO9780511817410.006
11. Brink, W. D., & Lee, L. S. (2015). The Effect of Tax Preparation Software on Tax Compliance: A Research Note. Behavioral Research in Accounting, 27(1), 121–135. https://doi.org/10.2308/bria-50977
12. Brown, S. V., & Knechel, W. R. (2016). Auditor–Client Compatibility and Audit Firm Selection. Journal of Accounting Research, 54(3), 725–775. https://doi.org/10.1111/1475-679X.12105
13. Cano‐Rodríguez, M., & Moreno, A. (2020). Religion and the Readability of Textual Financial Disclosures. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3619116
14. Chang, Y. T., Chi, W., & Stone, D. N. (2024). Is Client-Specific Information Useful to Investors? Evidence From Key Audit Matter Reports. Journal of Accounting, Auditing & Finance, 39(3), 786–806. https://doi.org/10.1177/0148558X221091804
15. Courtis, J. K. (1998). Annual report readability variability: Tests of the obfuscation hypothesis. Accounting, Auditing & Accountability Journal, 11(4), 459–472. https://doi.org/10.1108/09513579810231457
16. Darwish, N. A. (2022). High-Growth Entrepreneurial Firms in Extreme Context: The Case of Palestine. Businesses, 2(4), 486–500. https://doi.org/10.3390/businesses2040031
17. de Villiers, C., Dimes, R., & Molinari, M. (2023). How will AI text generation and processing impact sustainability reporting? Critical analysis, a conceptual framework and avenues for future research. Sustainability Accounting, Management and Policy Journal, 15(1), 96–118. https://doi.org/10.1108/SAMPJ-02-2023-0097
18. DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183–199. https://doi.org/10.1016/0165-4101(81)90002-1
19. DeFond, M. L., & Lennox, C. S. (2011). The effect of SOX on small auditor exits and audit quality. Journal of Accounting and Economics, 52(1), 21–40. https://doi.org/10.1016/j.jacceco.2011.03.002
20. DeFond, M. L., Raghunandan, K., & Subramanyam, K. R. (2002). Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions. Journal of Accounting Research, 40(4), 1247–1274. https://doi.org/10.1111/1475-679X.00088
21. Detzen, D., Evans, L., & Hoffmann, S. (2023). Identities in transition: Audit recruits and the German reunification. Accounting, Organizations and Society, 107, 101428. https://doi.org/10.1016/j.aos.2022.101428
22. Dobija, D., Cieślak, I., & Iwuć, K. (2013). Extended Audit Reporting—An Insight from the Auditing Profession in Poland. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2215605
23. El-Haj, M., & Rayson, P. (2016). OSMAN—A Novel Arabic Readability Metric. In: Proceedings of the Tenth International Conference on Language Resources and Evaluation (LREC’16).
24. Farooq, M. B., Azantouti, A. S. A., & Zaman, R. (2023). Non-financial information assurance: A review of the literature and directions for future research. Sustainability Accounting, Management and Policy Journal, 15(1), 48–84. https://doi.org/10.1108/SAMPJ-03-2023-0166
25. Faza’, M., & Badwan, N. (2024). Compliance of Sharia Audit in Islamic Banks and Islamic Financial Institutions in Palestine: A Literature Review. Journal of Islamic Economics and Finance Studies, 5(1), 42–66. https://doi.org/10.47700/jiefes.v5i1.7712
26. Fera, P., Pizzo, M., Vinciguerra, R., et al. (2022). Sustainable corporate governance and new auditing issues: a preliminary empirical evidence on key audit matters. Corporate Governance: The International Journal of Business in Society, 22(1), 194–211. https://doi.org/10.1108/CG-09-2020-0427
27. Flesch, R. (1948). A new readability yardstick. Journal of Applied Psychology, 32(3), 221–233. https://doi.org/10.1037/h0057532
28. Flory, S. M., Phillips, T. J., & Tassin, M. F. (1992). Measuring readability: A comparison of accounting textbooks. Journal of Accounting Education, 10(1), 151–161. https://doi.org/10.1016/0748-5751(92)90022-W
29. Frost, S. M. (2024). Financial Accounting and Reporting for Non-Accounting Students: How to Interpret Financial Statements and Appraise Company Performance. Kogan Page Publishers.
30. Gambetta, N., Sierra-García, L., García-Benau, M. A., et al. (2023). The Informative Value of Key Audit Matters in the Audit Report: Understanding the Impact of the Audit Firm and KAM Type. Australian Accounting Review, 33(2), 114–134. https://doi.org/10.1111/auar.12396
31. Goffman, E. (1959). The presentation of self in everyday life. Anchor.
32. Gurbanli, J. (2024). Impression management following a major crisis event: structured literature review. Available online: http://dspace.unive.it/handle/10579/25979 (accessed on 2 June 2023).
33. Huang, X., Huang, H., & Yuan, L. (2024). Do Firms Incur Financial Restatements? -A Recognition Study Based on Textual Features of Key Audit Matters Reports. SSRN Scholarly Paper, 4735094. https://doi.org/10.2139/ssrn.4735094
34. Hung, P. H. (2023). The Influence of Cultural, Legal and Institutional Factors on Auditors’ Roles, Responsibilities and Perceptions of Audit Quality. European Journal of Theoretical and Applied Sciences, 1(5). https://doi.org/10.59324/ejtas.2023.1(5).99
35. IAASB. (2015). International standard on auditing (ISA) 701, communicating key audit matters in the independent auditor’s report. IAASB New York.
36. Ismail, I. (2024). The extent of big data analysis by external auditors: A study of practices and prospects in Palestine. Management And Accounting Review, 23(1).
37. Khan, M. A. H., Oulasvirta, L. O., & Anttiroiko, A. V. (2023). Open Governance in Budgeting and Financial Reporting: A Case Study on the Local Governance of Bangladesh. In: Handbook of Research on Cybersecurity Issues and Challenges for Business and FinTech Applications. IGI Global. pp. 388–409. https://doi.org/10.4018/978-1-6684-5284-4.ch019
38. Kokina, J., & Blanchette, S. (2019). Early evidence of digital labor in accounting: Innovation with Robotic Process Automation. International Journal of Accounting Information Systems, 35, 100431. https://doi.org/10.1016/j.accinf.2019.100431
39. Lehavy, R., Li, F., & Merkley, K. (2011). The Effect of Annual Report Readability on Analyst Following and the Properties of Their Earnings Forecasts. The Accounting Review, 86(3), 1087–1115. https://doi.org/10.2308/accr.00000043
40. Lennox, C. S., Schmidt, J. J., & Thompson, A. M. (2023). Why are expanded audit reports not informative to investors? Evidence from the United Kingdom. Review of Accounting Studies, 28(2), 497–532. https://doi.org/10.1007/s11142-021-09650-4
41. Li, F. (2008). Annual report readability, current earnings, and earnings persistence. Journal of Accounting and Economics, 45(2), 221–247. https://doi.org/10.1016/j.jacceco.2008.02.003
42. Liao, Y. H., Lee, H., & Chen, C. J. (2023). The informational role of audit partner industry specialization. Review of Quantitative Finance and Accounting, 60(1), 69–109. https://doi.org/10.1007/s11156-022-01090-8
43. Lin, J. (2023). Does the disclosure of key audit matters improve the audit quality for sustainable development: Empirical evidence from China. PLoS ONE, 18(5), 1–13. https://doi.org/10.1371/journal.pone.0285340
44. Loughran, T., & McDonald, B. (2020). Textual Analysis in Finance. Annual Review of Financial Economics, 12, 357–375. https://doi.org/10.1146/annurev-financial-012820-032249
45. Maroun, W., & Duboisée de Ricquebourg, A. (2023). How auditors identify and report key audit matters—An organizational routines perspective. British Accounting Review, 101263. https://doi.org/10.1016/j.bar.2023.101263
46. Mc Laughlin, G. H. (1969). SMOG Grading-a New Readability Formula. Journal of Reading, 12(8), 639–646. http://www.jstor.org/stable/40011226
47. Meyer, J.W., & Rowan, B. (1977). Institutionalized Organizations: Formal Structure as Myth and Ceremony. American Journal of Sociology, 83, 340 - 363.
48. Minutti-Meza, M. (2021). The art of conversation: The expanded audit report. Accounting and Business Research, 51(5), 548–581. https://doi.org/10.1080/00014788.2021.1932264
49. Mitnick, B. M. (1974). The Theory of Agency: The Concept of Fiduciary Rationality and Some Consequences [PhD thesis]. University of Pennsylvania.
50. Muhabbat, H., & Jakhongir, S. (2024). Harmonization of International Valuation Standards and International Financial Reporting Standards. ASEAN Journal of Economic and Economic Education, 3(2).
51. Njagi, M. (2023). Independence of Internal Auditors: Significance, Guidelines, and Influencing Factors. East African Finance Journal, 2(1). https://doi.org/10.59413/eafj/v2.i1.8
52. Ojra, J. (2014). Strategic management accounting practices in Palestinian companies: Application of contingency theory perspective [PhD thesis]. University of East Anglia.
53. Palmer, M., Roeder, J., & Muntermann, J. (n.d.). Towards Automated Analysis of Financial Analyst Communication: The Induction of a Domain-Specific Sentiment Dictionary. In: Proceedings of the European Conference on Information Systems.
54. Pham, Q. T., Ho, X. T., Nguyen, T. P. L., et al. (2023). Financial reporting quality in pandemic era: Case analysis of Vietnamese enterprises. Journal of Sustainable Finance and Investment, 13(1), 330–352. https://doi.org/10.1080/20430795.2021.1905411
55. Pietronudo, M. C., Croidieu, G., & Schiavone, F. (2022). A solution looking for problems? A systematic literature review of the rationalizing influence of artificial intelligence on decision-making in innovation management. Technological Forecasting and Social Change, 182, 121828. https://doi.org/10.1016/j.techfore.2022.121828
56. Prawitt, D. F., Sharp, N. Y., & Wood, D. A. (2011). Reconciling Archival and Experimental Research: Does Internal Audit Contribution Affect the External Audit Fee? Behavioral Research in Accounting, 23(2), 187–206. https://doi.org/10.2308/bria-10065
57. Qi, Y., & Yuan, Q. (2023). Risk-preparedness mechanism and audit quality: Evidence from mandatory increase of professional indemnity insurance and professional risk fund. China Journal of Accounting Research, 16(1), 100284. https://doi.org/10.1016/j.cjar.2022.100284
58. Quattrone, P. (2021). Seeking transparency makes one blind: How to rethink disclosure, account for nature and make corporations sustainable. Accounting, Auditing & Accountability Journal, 35(2), 547–566. https://doi.org/10.1108/AAAJ-04-2021-5233
59. Rahaman, M. M., Hossain, M. M., & Bhuiyan, Md. B. U. (2022). Disclosure of key audit matters (KAMs) in financial reporting: Evidence from an emerging economy. Journal of Accounting in Emerging Economies, 13(3), 666–702. https://doi.org/10.1108/JAEE-11-2021-0355
60. Rainsbury, E., Chen, F., & Zudana, A. (2024a). The Impacts of Audit Committee Financial and Industry Expertise on the Readability of Key Audit Matters: New Zealand Evidence. SSRN Scholarly Paper, 4730420. https://doi.org/10.2139/ssrn.4730420
61. Rautiainen, A., Saastamoinen, J., & Pajunen, K. (2021). Do key audit matters (KAMs) matter? Auditors’ perceptions of KAMs and audit quality in Finland. Managerial Auditing Journal, 36(3), 386–404. https://doi.org/10.1108/MAJ-11-2019-2462
62. Rezaee, Z., & Homayoun, S. (2024). Key audit matters disclosures and informed traders. The British Accounting Review, 101386. https://doi.org/10.1016/j.bar.2024.101386
63. Rousseau, L. M., & Zehms, K. M. (2024). It’s a matter of style: The role of audit firms and audit partners in key audit matter reporting. Contemporary Accounting Research, 41(1), 529–561. https://doi.org/10.1111/1911-3846.12902
64. Sattari, S., Kordestani, A., Peighambari, K., et al. (2019). Embracing sustainability through corporate communication: An international case of CSR disclosure. In: Socially Responsible International Business. Edward Elgar Publishing. pp. 484–505.
65. Seebeck, A., & Kaya, D. (2023). The Power of Words: An Empirical Analysis of the Communicative Value of Extended Auditor Reports. European Accounting Review, 32(5), 1185–1215. https://doi.org/10.1080/09638180.2021.2021097
66. Shoja, E., Ahadi Serkani, S. Y., & Hoseini, S. A. (2024). Professional and Non-professional Investors’ Opinion on Critical Audit Matters in the Auditor’s Report. International Journal of Finance & Managerial Accounting, 9(33), 29–42. https://doi.org/10.30495/ijfma.2022.67305.1847
67. Sierra-García, L., Gambetta, N., García-Benau, M. A., et al. (2019). Understanding the determinants of the magnitude of entity-level risk and account-level risk key audit matters: The case of the United Kingdom. The British Accounting Review, 51(3), 227–240. https://doi.org/10.1016/j.bar.2019.02.004
68. Simunic, D. A. (1980). The Pricing of Audit Services: Theory and Evidence. Journal of Accounting Research, 18(1), 161–190. https://doi.org/10.2307/2490397
69. Sirois, L. P., Bédard, J., & Bera, P. (2018). The informational value of key audit matters in the auditor’s report: Evidence from an eye-tracking study. Accounting Horizons, 32(2), 141–162. https://doi.org/10.2308/acch-52047
70. Smith, E. A., & Senter, R. J. (1967). Automated Readability Index. Aerospace Medical Research Laboratories, Aerospace Medical Division, Air Force Systems Command.
71. Sydserff, R., & Weetman, P. (1999). A texture index for evaluating accounting narratives: An alternative to readability formulas. Accounting, Auditing & Accountability Journal, 12(4), 459–488. https://doi.org/10.1108/09513579910283503
72. Wang, G., & Wu, M. (2024). Corporate carbon emissions management and the disclosure of key audit matters. Frontiers in Environmental Science, 12. https://doi.org/10.3389/fenvs.2024.1381466
73. Wang, L., Jia, Y., Xiao, T., et al. (2024). Audit-firm serving experience heterogeneity and audit knowledge integration: Evidence from the disclosure of key audit matters. China Journal of Accounting Research, 17(2), 100354. https://doi.org/10.1016/j.cjar.2024.100354
74. Wang, Z., Hsieh, T. S., & Sarkis, J. (2018). CSR Performance and the Readability of CSR Reports: Too Good to be True? Corporate Social Responsibility and Environmental Management, 25(1), 66–79. https://doi.org/10.1002/csr.1440
75. Wu, C. Y. H., Hsu, H. H., & Haslam, J. (2016). Audit committees, non-audit services, and auditor reporting decisions prior to failure. The British Accounting Review, 48(2), 240–256. https://doi.org/10.1016/j.bar.2015.03.001
76. Yulianto, A. R., Lokman, N., & Razali, F. M. (2024). The Era of Transparency: Auditor’s Judgement of Key Audit Matter and Audit Quality. Journal of Business Management and Accounting, 14(2), 187–211. https://doi.org/10.32890/jbma2024.14.2.1
77. Zeng, Y., Zhang, J. H., Zhang, J., et al. (2021). Key audit matters reports in China: Their descriptions and implications of audit quality. Accounting Horizons, 35(2), 162–192. https://doi.org/10.2308/HORIZONS-19-189