The Effect of Key Audit Matters and Uncertainty Disclosures on Auditors’ Accountability Perceptions and Fair Value Decisions

45 Pages Posted: 23 Dec 2020

See all articles by Jin Ma

Jin Ma

University of Adelaide - Business School

Paul Coram

University of Adelaide - Business School; Financial Research Network (FIRN)

Indrit Troshani

University of Adelaide - Business School

Date Written: October 25, 2020

Abstract

We investigate how the mandated disclosure of Key Audit Matters (KAMs) and management disclosures in the financial statement footnotes affect auditors’ perceptions of their accountability and their subsequent fair value decisions. We find a substitution effect between KAMs disclosures and footnotes, in that auditors believe they are less accountable either when they have the opportunity to report on the fair value estimates in KAMs disclosures or when management has provided fair value related footnotes. However, despite the lower perceived accountability from either of these disclosures, we find that when both KAMs and footnotes are reported concurrently, auditors require greater fair value adjustments. Overall, our results show that the requirement to disclose KAMs does make a difference on auditors’ perceptions of accountability and their adjustment decisions.

Keywords: accountability; key audit matters; fair value decisions; audit report; disclosure; measurement uncertainty

JEL Classification: M41, M42, M48

Suggested Citation

Ma, Jin and Coram, Paul J. and Troshani, Indrit, The Effect of Key Audit Matters and Uncertainty Disclosures on Auditors’ Accountability Perceptions and Fair Value Decisions (October 25, 2020). Available at SSRN: https://ssrn.com/abstract=3718508 or http://dx.doi.org/10.2139/ssrn.3718508

Jin Ma (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Paul J. Coram

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Indrit Troshani

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia
+61883135526 (Phone)

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