Do key audit matters impact financial reporting behavior?
By Anna Keller Gold, Melina Heilmann, Christiane Pott, Johanna Rematzki. International Journal of Auditing, 2020
135 citations recorded by the source corpus.
This study experimentally examines whether the implementation of key audit matters (KAMs) in auditors' reports affects managers' reporting behavior. In line with prior research in psychology, we argue that greater transparency through KAMs leads to higher accountability pressure as managers may expect their judgments to be scrutinized more strongly in the presence of KAMs and, hence, to an improvement of financial reporting quality. Further, we examine whether informational precision (firm-specific versus nonfirm-specific information) in a KAM section moderates the effect of KAM presence on reporting behavior. Our findings show that managers' tendency to make an aggressive financial reporting decision is reduced in the presence of KAMs (compared to the absence of KAMs). This effect remains even when the description of the KAM is of low informational precision. Thus, our results suggest that KAMs serve as a beneficial mechanism for enhancing financial reporting quality by attenuating aggressive financial reporting behavior, regardless of the precision employed by auditors.
Subfields: Accounting, General Decision Sciences, Safety Research
View Paper: https://www.semanticscholar.org/paper/4f7ded30246a0650e863f1a88468fa3d665506ff
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Citations in the corpus
- The Effects of Key Audit Matters on the Auditor’s Report’s Communicative Value: Experimental Evidence from Investment Professionals and Non-professional Investors (2020, result): “In contrast, the study conducted by Klueber et al. (2018) suggests that including a KAM section in the auditor’s report can function as a beneficial mechanism for enhancing managerial financial reporting quality if the information precision of the KAM is high.”