Spotlighting or downplaying risks? Auditor attitudes towards COVID-19 impacts as reflected in key audit matters

Purpose This paper investigates how audit firms identified and communicated the impacts of the COVID-19 pandemic in the key audit matters (KAMs) sections of audit reports, distinguishing whether such disclosure is highlighting or downplaying the COVID risks. Design/methodology/approach We analyze the KAM disclosures made for a sample of 34 Spanish IBEX-35 listed companies for the year 2020. Qualitative content analysis was conducted to derive a taxonomy of audit firms' attitudes on whether they highlighted or downplayed the importance of COVID-19 risk regarding company disclosures. To do so, the following categories were established: aligned COVID risk, generalist, conservative, aligned no COVID risk and potentially omissive. Findings The study findings indicate that 26% of total KAMs referred to COVID-19, and were concentrated in certain higher-risk business sectors. The results of this analysis provide initial evidence that most audit firms emphasized pandemic issues consistent with company disclosures. However, there was some variability, suggesting there is a need for clearer reporting standards amid such crises. Research limitations/implications The proposed alignment taxonomy conceptually enriches the literature on the assessment of financial transparency practices. Practical implications This study has significant implications for policymakers (for example, in assessing how auditors have communicated COVID-19-related issues) and for the auditors concerned (to identify the strengths and weaknesses of their approach) Social implications Among other implications, we highlight the crucial governance role played by risk disclosure in maintaining stakeholder legitimacy during periods of business and social turbulence. Originality/value To our knowledge, this is the first research conducted to determine the behavior of auditors in this respect, and to classify their attitudes accordingly.