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

Accounting in Europe, forthcoming (published online)

Posted: 14 Sep 2016 Last revised: 19 May 2020

See all articles by Annette Köhler

Annette Köhler

University of Duisburg-Essen

Nicole V.S. Ratzinger-Sakel

University of Hamburg

Jochen Theis

University of Southern Denmark

Date Written: February 25, 2020

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.

Keywords: communicative value, improved auditor’s report, key audit matters, trust model, investment professionals

JEL Classification: M42

Suggested Citation

Köhler, Annette and Ratzinger-Sakel, Nicole V.S. and Theis, Jochen, The Effects of Key Audit Matters on the Auditor's Report's Communicative Value: Experimental Evidence from Investment Professionals and Non-Professional Investors (February 25, 2020). Accounting in Europe, forthcoming (published online), Available at SSRN: https://ssrn.com/abstract=2838162 or http://dx.doi.org/10.2139/ssrn.2838162

Annette Köhler

University of Duisburg-Essen ( email )

Lotharstrasse 65
Duisburg, 47057
Germany

Nicole V.S. Ratzinger-Sakel

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Jochen Theis (Contact Author)

University of Southern Denmark

Universitetsparken 1
DK-6000 Kolding, 6000
Denmark

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