Does Considering Key Audit Matters Affect Auditor Judgment Performance?

Corporate Ownership & Control / Volume 17, Issue 1, Autumn 2019 (Special Issue)

15 Pages Posted: 19 Jul 2017 Last revised: 6 Dec 2019

Date Written: December 1, 2019

Abstract

This study examines the impact of considering key audit matters (KAM) on auditor judgment performance. This study uses a 2×2 between-subjects experiment based on a goodwill impairment testing case with 73 auditors. The two independent variables KAM consideration (present vs. absent) and client pressure (high vs. low) are manipulated. As dependent variables, skeptical judgment and action as different facets of auditor judgment performance are used. The results suggest that auditors exhibit significantly less skeptical judgment when KAM consideration is present than when KAM consideration is absent. This implies that, when considering KAM, auditors are more willing to acquiesce to their clients’ desired accounting treatments due to moral licensing. By showing that KAM consideration leads to less skeptical judgment, it can be documented that the new KAM reporting requirement, intended to improve the communicative value of the auditor’s report for users (IAASB, 2012), comes at the expense of auditor judgment performance. As in every experiment, the risk that the results are case-specific has to be acknowledged.

Keywords: key audit matters, client pressure, auditor judgment performance, motivated reasoning, goal commitment, moral licensing

JEL Classification: M42

Suggested Citation

Ratzinger-Sakel, Nicole V.S. and Theis, Jochen, Does Considering Key Audit Matters Affect Auditor Judgment Performance? (December 1, 2019). Corporate Ownership & Control / Volume 17, Issue 1, Autumn 2019 (Special Issue), Available at SSRN: https://ssrn.com/abstract=3003318 or http://dx.doi.org/10.2139/ssrn.3003318

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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