The effect of key audit matters and management disclosures on auditors’ accountability perceptions and fair value decisions

34 Pages Posted: 23 Dec 2020 Last revised: 26 Dec 2023

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 - Adelaide Business School

Date Written: December 22, 2023

Abstract

We investigate how disclosure of key audit matters (KAMs) and related management footnote disclosures on a subjective accounting estimate relating to fair value in the financial statement footnotes affect auditors’ perceptions of their accountability and their subsequent adjustment decisions. In relation to accountability, a substitution effect is found between KAMs disclosures and footnotes. That is, auditors believe that they are less accountable either when they can report on the fair value estimates in KAMs disclosures, or when management has provided expanded fair value related footnotes. However, we find that when the fair value disclosure is considered by both KAMs and expanded footnotes it results in the auditor recommending a more conservative fair value adjustment decision. Overall, our results show that the requirement to disclose KAMs does make a real difference and interacts with management’s disclosures to affect 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 management disclosures on auditors’ accountability perceptions and fair value decisions (December 22, 2023). British Accounting Review, Forthcoming, 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 - Adelaide Business School ( email )

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

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