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Bright lines vs. blurred lines: When do critical audit matters influence investors' perceptions of management's reporting credibility?

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  • Ozlanski, Michael E.

Abstract

The Public Company Accounting Oversight Board will soon require auditors to disclose critical audit matters (CAMs) to highlight areas of financial statements which are subject to a higher risk of material misstatement. Concurrently, the Financial Accounting Standards Board and the International Accounting Standards Board continue their efforts to converge both sets of accounting standards, and the newly converged revenue recognition standard contains a relatively limited amount of implementation guidance. I hypothesize and find that CAMs lower investors' perceptions of management's reporting credibility when the financial statement area discussed by CAMs is governed by precise, but not an imprecise, accounting standards. The emphasis of risks via CAMs is incongruent with investors' expectations about the ability of precise standards to reduce financial reporting risks. The results from this experiment with nonprofessional investors provide insights about the interaction between CAMs and accounting standards.

Suggested Citation

  • Ozlanski, Michael E., 2019. "Bright lines vs. blurred lines: When do critical audit matters influence investors' perceptions of management's reporting credibility?," Advances in accounting, Elsevier, vol. 45(C), pages 1-1.
    • Handle: RePEc:eee:advacc:v:45:y:2019:i:c:1
    DOI: 10.1016/j.adiac.2019.04.001
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    Cited by:

    1. Pinto, Inês & Morais, Ana Isabel & Quick, Reiner, 2020. "The impact of the precision of accounting standards on the expanded auditor’s report in the European Union," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 40(C).
    2. Li, Valerie & Luo, Yan, 2023. "Costs and benefits of auditors' disclosure of critical audit matters: Initial evidence from the United States," Advances in accounting, Elsevier, vol. 60(C).
    3. Duboisée de Ricquebourg, Alan & Maroun, Warren, 2023. "How do auditor rotations affect key audit matters? Archival evidence from South African audits," The British Accounting Review, Elsevier, vol. 55(2).

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