IDEAS home Printed from https://ideas.repec.org/a/taf/euract/v30y2021i1p63-82.html
   My bibliography  Save this article

When Do Investors Value Key Audit Matters?

Author

Listed:
  • Robyn Moroney
  • Soon-Yeow Phang
  • Xinning Xiao

Abstract

While prior studies have considered the effect of the enhanced auditor’s report (EAR) on a range of auditor, management and investors’ judgments, we consider whether the inclusion of key audit matters (KAMs) in the EAR affects investor perceptions of the value of the audit as well as the credibility of the auditor. These are important issues linked to the rationale for the introduction of the EAR. As prior studies have demonstrated that audit firm size affects investor perceptions across a range of measures, we predict that the link between KAMs (absent versus present) and investor perceptions around value and credibility is affected by audit firm size. We find that the inclusion of KAMs improves perceived value and credibility only when a Non-Big 4 firm conducts the audit. When a Big 4 firm conducts the audit, perceived value and credibility are high whether KAMs are included or not. We also find that perceived credibility mediates the joint effect of KAMs and audit firm size on the perceived value of the audit. In additional analysis, we find that the inclusion of KAMs draws investors’ attention to new and expanded messages, taking their attention away from messages considered core to the audit report.

Suggested Citation

  • Robyn Moroney & Soon-Yeow Phang & Xinning Xiao, 2021. "When Do Investors Value Key Audit Matters?," European Accounting Review, Taylor & Francis Journals, vol. 30(1), pages 63-82, January.
    • Handle: RePEc:taf:euract:v:30:y:2021:i:1:p:63-82
    DOI: 10.1080/09638180.2020.1733040
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09638180.2020.1733040
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/09638180.2020.1733040?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Qi & Zhang, Lin & Ma, Qianqun & Wu, Chong, 2024. "The impact of financial risk on boilerplate of key audit matters: Evidence from China," Research in International Business and Finance, Elsevier, vol. 70(PB).
    2. Sau Yu Ong & Robyn Moroney & Xinning Xiao, 2022. "How do key audit matter characteristics combine to impact financial statement understandability?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 805-835, March.
    3. 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).
    4. Clacher, Iain & Garcia Osma, Beatriz & Scarlat, Elvira & Shields, Karin, 2021. "Do commonalities facilitate private information channels? Evidence from common gender and insider trading," Journal of Corporate Finance, Elsevier, vol. 70(C).
    5. Nien-Su Shih, 2024. "Does Using the Extended Audit Report Decrease Information Asymmetry in Family Firms?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(1), pages 1-3.
    6. Hien Hoang & Robyn Moroney & Soon‐Yeow Phang & Xinning Xiao, 2023. "Investor reactions to key audit matters: Financial and non‐financial contexts," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3325-3349, September.
    7. 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).
    8. Ma, Jin & Coram, Paul & Troshani, Indrit, 2024. "The effect of key audit matters and management disclosures on auditors’ judgements and decisions: An exploratory study," The British Accounting Review, Elsevier, vol. 56(2).
    9. Guo, Mengmeng & Su, Yun & Zhao, Rui, 2024. "The effect of expanded audit report on IPO underpricing: Evidence from China," Emerging Markets Review, Elsevier, vol. 58(C).
    10. Kong, Dongmin & Ji, Mianmian & Liu, Shasha, 2022. "Does the mandatory disclosure of audit information affect analysts' information acquisition?," International Review of Financial Analysis, Elsevier, vol. 83(C).
    11. David Hay & Noel Harding & Chris Gan & Irene Ge & Linh Ho & Dinithi Ranasinghe & Harj Singh & Nigar Sultana & Shan Zhou, 2023. "Comments of the AFAANZ Auditing and Assurance Standards Committee on the Proposed Standard on Assurance Engagements over GHG Emissions Disclosure," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4813-4820, December.
    12. David Hay & Noel Harding & Pallab Biswas & Chris Gan & Irene Qingling Ge & Linh Ho & Dinithi Ranasinghe & Harj Singh & Nigar Sultana & Shan Zhou, 2024. "Comments on Exposure Draft for Proposed ISSA 5000, sustainability assurance engagements by the Auditing and Assurance Standards Committee of AFAANZ," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 1221-1239, March.
    13. Camacho-Miñano, María-del-Mar & Muñoz-Izquierdo, Nora & Pincus, Morton & Wellmeyer, Patricia, 2024. "Are key audit matter disclosures useful in assessing the financial distress level of a client firm?," The British Accounting Review, Elsevier, vol. 56(2).
    14. Paul J. Coram & Yi (Dale) Fu & Mukush Garg & Noel Harding & David C. Hay & Mohammad Jahanzeb Khan & Nora Muñoz‐Izquierdo & Ashna Prasad & Nigar Sultana & Jamie Tong, 2022. "Comments of the AFAANZ auditing and assurance standards committee on proposed international standard on auditing ISA for LCE," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 4219-4244, September.
    15. Ma, Qianqun & Zhou, Jianan & Wang, Qi & Wang, Kongwen, 2024. "The impact of key audit matters on goodwill accounting and investment behavior: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 93(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:euract:v:30:y:2021:i:1:p:63-82. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REAR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.