The Information Content of Key Audit Matters Characteristics
Sin-Hui Yen/Department of Accounting, Tamkang University
Tien-Yun Lu/Department of Accounting, Tamkang University
Abstract
This study examines the information content of three information characteristics (uniqueness, changes, and specificity) of key audit matters (KAMs) from the perspective of the earnings response coefficient (ERC) and value relevance. Based on data from Taiwan-listed company from 2016 to 2021, excluding the finance industry, we find that investors regard KAMs as a type of risk. From the perspective of the ERC, the uniqueness and specificity of KAMs reduce the amount of trust that investors have in earnings information. From the perspective of stock price valuation, the uniqueness of and changes in KAMs cause investors to give less weight to earnings information and turn rather to equity book value information. We also find that the footnotes mentioned in KAMs reduce the value relevance of the book value of equity per share. Dividing the study into the early period in the implementation of extended audit reports (2016-2018) and the recent period (2019-2021), we find that the impact of KAMs on the ERC will change from uniqueness to specificity over time. In the early period, all three KAMs information characteristics influence the value relevance of accounting information. However, only uniqueness and changes are influential in the recent period. Finally, we find that KAMs characteristics do have a certain level of correlation with firm risk variables.
Keywords
Key audit mattersCumulative abnormal returnsEarnings response coefficientValue relevance
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