The effects of key audit matters on the auditor’s report’s communicative value? Experimental evidence from investment professionals and non-professional investors

Annette Koehler, Nicole Ratzinger-Sakel, Jochen Theis

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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.

Original languageEnglish
JournalAccounting in Europe
Volume17
Issue number2
Pages (from-to)105-128
ISSN1744-9480
DOIs
Publication statusPublished - 2020

Keywords

  • communicative value
  • improved auditor’s report
  • investment professionals
  • key audit matters
  • trust model

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