Reporting of key audit matters: an analysis based on earnings smoothing in the brazilian electric sector

Purpose: This research aims to verify the impact of Key Audit Matters (KAMs) on earnings management practices in Brazilian electric sector companies. Methodology: To measure intentional earnings management, two measures were used capturing different dimensions of earnings smoothing, namely, general smoothing and accrual- based smoothing, as presented in Lang, Lins, and Maffet's (2012) work. To study KAMs, three distinct proxies were used: the quantity of KAMs reported per company per year, the FLESCH readability index, and the word count (LENGTH). Results: The results indicate that KAMs do not have a significant impact on the practice of intentional earnings smoothing in the financial results of the analyzed companies. Contributions of the Study: This work contributes to the literature by advancing previous research conducted in Brazil and by cooperating with regulators and standard setters by suggesting improvements in audit reports.