Journal of Accounting Review  2026/07
JAR Vol. 83   81-133
DOI:10.6552/JOAR.202607_(83).0003

Do Key Audit Matters Convey Operational Risks and Influence Managerial Decision-Making? Perspectives on Inventory and Accounts Receivable

Abstract

Using inventory and accounts receivable as primary examples, this paper investigates whether Key Audit Matters (KAM) effectively convey significant corporate operational risks and whether the reporting of KAM influences the subsequent operational decisions. Based on empirical data analysis of listed companies in Taiwan (excluding the financial industry) from 2016 to 2023, the empirical results reveal that when a company’s inventory (or accounts receivable) is reported as a KAM, there is a significantly lower inventory turnover ratio (or accounts receivable turnover ratio) and a higher inventory impairment (or accounts receivable impairment) during the same period, supporting the notion that KAM reporting in Taiwan is indeed related to operational risks. Additionally, the study finds that when a company has a specific item reported as a KAM, the improvement in the operational performance of the related asset (inventory or accounts receivable) in the subsequent period is significantly greater than that of companies not reported with KAM. This supports the idea that KAM reporting plays a role in encouraging companies to improve the management performance of related assets. Additional analysis reveals that while the reporting of inventory and accounts receivable KAMs by auditors in Taiwan exhibits signs of "rigidity" (persistence), it remains significantly correlated with operational risks. Furthermore, the continuous reporting of KAMs still has an incremental effect on enhancing corporate management performance. The results of cross-sectional research show that the results of this study are highly robust and are not influenced by variables such as industry volatility, corporate competitiveness, or credit risk.