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

By Annette G. Köhler, Nicole V. S. Ratzinger‐Sakel, Jochen C. Theis. 2020

137 citations recorded by the source corpus.

Abstract We investigate the effect of key audit matters (KAM) in the auditor’s report as required by the new ISA 701. We consider investment professionals and non-professional investors in our experiments, in which we test the communicative value of a KAM section relating to goodwill impairment. Our main results show that in the condition in which the KAM section suggests that already small changes in the key assumptions could eventually lead to a goodwill impairment (KAM negative condition), investment professionals assess the economic situation of the company to be significantly better as compared to the condition in which the KAM section suggests that only large changes in the key assumptions could eventually lead to a goodwill impairment (KAM positive condition). In the additional analysis with non-professional investors, we find that a KAM section has no communicative value, implying that non-professional investors have difficulties with processing the information conveyed with KAM.

Subfields: Accounting, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/ebbc5284803892f088d9f1729aeabac2016dc144

Citations in the corpus

• What matters in disclosures of key audit matters: Evidence from Europe (2018, unknown): “Köhler et al. (2016) extend these studies by including not only nonprofessional investors but also investment professionals.”