The Effects of Key Audit Matters on the Auditor's Report's Communicative Value: Experimental Evidence from Investment Professionals and Non-Professional Investors

Köhler, Annette G.; Ratzinger‐Sakel, Nicole V.S.; Theis, Jochen

doi:10.2139/ssrn.2838162

Cited by 36 publications

(58 citation statements)

References 55 publications

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“…Finally, due to the differences in the professional ability of report users, there will be difficulties in information interpretation. The research of Köhler et al (2016) found that the influence of investor professionalism on the interpretation of new audit reports cannot be ignored. Compared with professional investors, non-professional investors have difficulties in dealing with information on key audit matters, which leads to the failure of improved audit reports to increase communication value after the deadline.…”

Section: The Impact On Report Usermentioning

confidence: 99%

A Study of Key Audit Matters Disclosure

Li¹

2020

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With the continuous development of the capital market, the quality requirements for the audit reports of listed companies are becoming stricter and stricter. On December 23, 2016, China officially released the auditing standards of China certified public accountants no.1504-communicating key audit matters in audit reports. Listed companies listed on A + H shares implemented the new standards in their financial reports from January 1, 2017, and fully implemented standard 1504 from January 1, 2018. Under the new standards, the audit reports of listed companies disclose the key audit matters that have significant impact during the current audit process. This paper studies the format, content and quantity of disclosure of key audit matters, and analyzes the disclosure of key audit matters of China's A-share listed companies from 2016 to 2018 and summarizes the impact of disclosure of key audit matters from three aspects: users of financial reports, auditors and the audited entity.

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Section: The Impact On Report Usermentioning

confidence: 99%

A Study of Key Audit Matters Disclosure

Li¹

2020

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“…Köhler et al. () extend these studies by including not only nonprofessional investors but also investment professionals. Like Backof (), they find that KAMs have no communicative value for nonprofessional investors, but for professional investors, a negative KAM (small changes in key assumptions could eventually lead to goodwill impairment) leads to a better assessment of a firm's economic situation than a positive KAM (large changes in key assumptions could eventually lead to goodwill impairment).…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

“…Nevertheless, less research focuses on what might influence the disclosure of KAMs by auditors. Köhler, Ratzinger‐Sakel, and Theis () suggest that future research on how auditors’ characteristics influence the communication of KAMs is needed as this communication is based on their judgment.…”

Section: Introductionmentioning

confidence: 99%

What matters in disclosures of key audit matters: Evidence from Europe

Pinto

Morais

2018

Financ Manag Account

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New regulation in the European Union has introduced the mandatory disclosure of key audit matters (KAMs) to audit reports. The EU has identified KAMs as significant risks, significant transactions or events, or significant judgments by auditors. This paper aims to determine the factors that influence the number of KAMs that auditors disclose in the main European countries under the new regulation. We predict that the litigation risk, reputation loss, auditor-client relationship, precision of accounting standards, and the effect of regulators and supervisors' activities affect the number of KAMs that auditors disclose.The sample consists of firms on the FTSE 100, CAC 40, or AEX 25 that have disclosed KAMs at the 2016 fiscal yearend. In line with our hypotheses, the findings show that a higher number of business segments (complexity) and more precise accounting standards lead to the disclosure of a higher number of KAMs. Contrary to our expectations, the results indicate that a positive association exists between the audit fee and the number of KAMs disclosed.As audit fees can be related to higher client risk, this finding could indicate that litigation risk dominates any auditor-client dependence. Further, although auditors often view their audits of banks as complex, the findings show a 146 | PINTO aNd MORaIS

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“…There is some early evidence regarding the effect of a KAM section within the three following domains: Auditor liability (Backof, Bowlin, and Goodson 2014;Brasel, Doxey, Grenier, and Reffett 2016;Brown, Majors, and Peecher 2015;Gimbar, Hansen, and Ozlanski 2016a;Kachelmeier, Schmidt, and Valentine 2015), aggregated capital market reactions (Lennox, Schmidt, and Thompson 2016), and individual investors' decisions or assessments (Christensen, Glover, and Wolfe 2014;1 Köhler, Ratzinger-Sakel, and Theis 2016). The preliminary behavioral evidence concerning the studies on auditor liability suggest that KAM sections regarding subsequent litigation either reduce or do not influence auditor liability.…”

Section: Introductionmentioning

confidence: 99%

Does Considering Key Audit Matters Affect Auditor Judgment Performance?

Ratzinger‐Sakel

Theis

2017

SSRN Journal

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We investigate the impact of considering key audit matters (KAM) on auditor judgment performance and conducted a 2×2 between-subjects experiment based on a goodwill impairment testing case with 73 experienced auditors. We manipulated the two independent variables KAM consideration (present vs. absent) and client pressure (high vs. low). As dependent variables, we captured skeptical judgment and action as different facets of auditor judgment performance. Our results suggest that auditors' reaction to our client pressure manipulation is rather weak. If at all, auditors seem to become slightly more skeptical in their judgments and actions when client pressure is high, which might suggest that a reasonableness constraint has been triggered. Furthermore, we find that auditors exhibit significantly less skeptical judgment when KAM consideration is present than when KAM consideration is absent. This suggests that, when considering KAM, auditors are more willing to acquiesce to their clients' desired accounting treatments due to moral licensing. JEL Classification: M42

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The Effects of Key Audit Matters on the Auditor's Report's Communicative Value: Experimental Evidence from Investment Professionals and Non-Professional Investors

Cited by 36 publications

References 55 publications

A Study of Key Audit Matters Disclosure

A Study of Key Audit Matters Disclosure

What matters in disclosures of key audit matters: Evidence from Europe

Does Considering Key Audit Matters Affect Auditor Judgment Performance?

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