1.

2 PROBLEM STATEMENT

Due to the effects of the economic crisis that started in 2007, many consumers of
financial information from corporations have expressed their concern with the procedure
for auditing and verifying such information. Other than that, the auditor may be involved
in reporting Key Audit Matters as part of the audit engagement. However, the intention of
providing KAM is to increase the accuracy of information regarding performed audits and
to give financial users a foundation on which to keep communicating with management
and those in charge of governance. Consequently, there are a number of issues that need
to be resolved. The mistakes caused are also the accountant's responsibility. Also, it
influences the accountant's capacity to produce quality outcomes.

There has been a requirement for more informative audit reports and for auditors to
give users of financial information more relevant data on the risks that organizations face
as a result of previous financial scandals and the increasing complexity of financial
reporting. However knowing more about KAMs may be useful to those who use financial
statements, some are concerned that the disclosure may be perceived as implying
different levels of assurance in various parts of the financial statements, or "little by little"
assurance. The issue with this claim because it assumes that corporate managers will be
exposed to more narrative risk as a result of auditors exposing more KAMs.

Agency theory acknowledges the need for effective corporate governance

mechanisms to reduce the risk between management and shareholders (Jensen &
Meckling 1976). Corporate governance mechanisms assist businesses in achieving their
goals and increase the probability of long-term success (Securities Commission of
Malaysia 2017). The formation of an audit committee is an essential component of the
corporate governance mechanism. Securities The Malaysian Commission has mandated
the formation of an audit committee via the Malaysian Corporate Governance Code
(MCCG). This committee is in charge of planning internal audits, appointing external
auditors, advising external auditors on audit matters, and ensuring that financial
statements are prepared in accordance with prescribed accounting standards. The
existence of this committee mitigates the agency problem associated with the manager-
shareholder agent-principal relationship.

In turn, if a material misstatement is later found, the notion of component assurance

may indicate varying levels of perceived auditor responsibility. The influence of KAMs
disclosures on perceptions of auditor assurance as well as perceptions of the auditor's
accountability and responsibility for a major misstatement subsequently detected in the
KAMs area are investigated using an empirical model to address these concerns.
Furthermore, KAMs are shared in order to provide transparency regarding the audit that
was conducted and to give users of financial statements a basis for future interaction with
management and others in charge of governance.

In general, auditors give the same level of reasonable certainty for KAM areas as they
do for other areas of financial statements, adapting the type and scope of audit processes
to account for any extra difficulty and subjectivity. However, there is no assurance that
readers of financial statements will interpret KAM disclosures in accordance with this
logic. Specifically, emphasizing a financial statement area as "important" to the audit,
along with further disclosure of the corresponding audit processes undertaken, could
provide the impression that this area has greater assurance than other parts of the audit.
Such disclosures could also be regarded as enhancing the auditor's duty for that financial
statement area, possibly increasing the auditor's liability in the case of a subsequent major
misstatement. found in that area. Given the increased focus on KAM, KAM disclosures
offer the opportunity for counterfactual reasoning regarding what the auditor "should
have known" about any misstatement.
1.3 RESEARCH QUESTION
Based on the problem statement that has been discussed, the research question of the
study are :
1. What aspect of sustainable corporate governance is the most essential?
2. Can the auditor's wrongdoing be uncovered through sustainable corporate
governance?
3. What positive results did the audit report achieve in Malaysia?

1.4 RESEARCH OBJECTIVE

The aim of this survey is to present an early empirical inquiry into any possible
relationship between a system of sustainable corporate governance and the volume of KAMs
disclosed in the audit report. Furthermore, the study has the following three specific
objectives:
1. To identify the level of KAMs, and key audit matters disclosed in the years 2020,
2021 & 2022.
2. To measure the sustainable governance index for the sample companies.
3. To determine the relationship between sustainable corporate and the number of key
audit matters disclosed among the listed company in Malaysia.

1.5 SIGNIFICANCE OF THE STUDY

This study provides material for lecturers in academic institutions and professional
organizations to understand the significance of audit committees, quality financial reporting,
and other key audit matters for all Malaysian companies. This material can be used by
academic institutions and professional organizations to prepare for the audit. Key audit
matters and corporate governance have benefited from this research. Furthermore, the
auditors give the same level of reasonable certainty for KAM areas as they do for other areas
of financial statements. There is no assurance that readers will interpret KAM disclosures in
accordance with this logic. Such disclosures could also increase the auditor's liability in the
case of a subsequent major misstatement. Moreover, specific research goals are mentioned,
describing what this study is meant to accomplish. To emphasize the value and significance
of this research, the significance of the study is finally discussed in this chapter.
1.6 SUMMARY
Malaysian Commission has mandated the formation of an audit committee via the
Malaysian Corporate Governance Code (MCCG). The existence of this committee mitigates
the agency problem associated with the manager-shareholder agent-principal relationship.
Some are concerned that disclosure may be perceived as implying different levels of
assurance in various parts of the financial statements, or "little by little" assurance. Auditors
give the same level of reasonable certainty for KAM areas as they do for other areas of
financial statements. Given the increased focus on KAM, KAM disclosures offer the
opportunity for counterfactual reasoning regarding what the auditor "should have known"
about any misstatement.