This study investigates the relationship between environmental, social and governance (hereafter ESG) performance and the level of disclosure of key audit matters (KAMs) in selected ASEAN countries that have adopted ISA 701 and examines the moderating role of greenwashing.
The sample consists of nonfinancial companies listed in Malaysia, Singapore and Thailand for the period 2016–2022. The analysis was conducted using OLS regression, robustness tests and addressing potential endogeneity.
The results indicate a positive and significant statistically for the relationship between ESG performance and KAMs disclosure. Greenwashing is shown to strengthen this relationship, indicating potential misleading practices in sustainability reporting. Furthermore, in countries with stronger regulatory enforcement, companies with higher ESG scores tend to disclose more KAM, highlighting the importance of the institutional context in influencing auditor decisions.
This study expands the literature on the link between ESG and KAMs by integrating global institutional and governance factors, providing a new perspective on the dynamics of auditing and sustainability reporting.
The findings confirm that ESG disclosure can help stakeholders identify hidden audit risks. However, high ESG performance does not necessarily guarantee better disclosure quality.
This study offers a contribution by bridging the discourse between ESG performance and KAM disclosure, which were previously viewed separately, and highlighting the composite governance mechanisms that influence auditor decisions.
