An Investigation of U.S. Critical Audit Matter Disclosures

Burke, Jenna; Hoitash, Rani; Hoitash, Udi; Xiao, Xuezhang

doi:10.2139/ssrn.3635477

Cited by 17 publications

(11 citation statements)

References 64 publications

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“…Next, using textual analysis, they document changes in the financial statement footnotes directly referenced by CAMs, providing new evidence of a potential spillover effect of CAMs on other disclosures. Also, using similar outcome variables as prior studies in the UK, Burke et al (2020) do not find a detectable market reaction or overall changes in audit quality for large accelerated filers after the CAM requirements. 40 Another recent study of CAMs by Klevak et al (2020) finds associations between the characteristics of CAMs and (1) market reaction to a company's annual report (i.e.…”

supporting

confidence: 56%

“…A comment letter written by Bochkay et al (2020), responding to the PCAOB's post-implementation review, confirms the Burke et al (2020) early findings on the nominal incremental market reaction and change in fees after the CAM requirements. Bochkay et al (2020) examines audit opinions of large accelerated filers from June 2019 until April 2020 (2,142 filers and 3,575 unique CAMs).…”

mentioning

confidence: 88%

“…In contrast, US CAMs specifically relate to material accounts or disclosures and do not provide additional information beyond the title, description, and auditors' response (although in some cases there are references to other sections of the annual report). While the typical number of KAMs in the UK is between three and four, the typical number of CAMs in the US is between one and two (Gutierrez et al 2018;Bochkay et al 2020;Burke et al 2020). Notably, some dual-listed companies even have different numbers of KAMs and CAMs in their audit reports under the PCAOB and IAASB rules.…”

Section: The Process That Generates Camsmentioning

confidence: 99%

“…Further, this study does not find evidence of incremental changes in the cost or quality of audits. 38 A recent study by Burke et al (2020) provides some of the first available evidence on the consequences of the expanded report for US large accelerated filers. This study pushes the boundaries of existing research not only by examining new data, but also by proposing new analyses.…”

mentioning

confidence: 99%

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The art of conversation: the expanded audit report

Minutti‐Meza

2021

Accounting and Business Research

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The new generation of expanded audit reports includes disclosures about significant matters in a company's financial reporting and its audit. These disclosures are a landmark change in auditors' responsibility to provide information to the public. I examine expanded reports in various jurisdictions, why they became mandatory, what the evidence from their implementation is, and whether they have fulfilled the expectations of regulators and other stakeholders. Expanded reports are intended to increase the information content and usefulness of audit opinions, to increase external monitoring of auditors and management, and to foster a more open conversation between auditors and users of financial reporting. However, existing regulatory requirements, conflicting auditors' incentives to provide new information, and evidence from the expanded reports' implementation call into question whether these objectives have been met. It is my hope that expanded reports are only a first step towards enhanced auditor reporting.

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supporting

confidence: 56%

mentioning

confidence: 88%

Section: The Process That Generates Camsmentioning

confidence: 99%

mentioning

confidence: 99%

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The art of conversation: the expanded audit report

Minutti‐Meza

2021

Accounting and Business Research

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“…Our findings provide new insights into the impacts of KAM disclosure. Prior literature intensively focuses on the information value of the expanded audit report (Gutierrez et al ., 2018; Liao et al ., 2019; Burke et al ., 2021; Lennox et al ., 2021) and its effects on investors (Christensen et al ., 2014; Rapley et al ., 2021). A few studies investigate how KAM disclosure influences clients’ financial reporting (Gold et al ., 2020).…”

Section: Figurementioning

confidence: 99%

Do Key Audit Matters Affect Operating Activities? Evidence from Inventory Management

Wang

et al. 2022

Abacus

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We investigate whether and how the disclosure of key audit matters (KAMs) affects firms' real operating decisions by examining the association between inventory-related KAMs and firms' inventory management. Exploiting China's recent audit report reform, our difference-in-difference analysis reveals that after the reform, inventory management efficiency increases more for firms subject to inventory-related KAMs than for other firms and the effect is more pronounced for industries in which inventory is material. Further analyses show that inventory-related KAMs positively affect inventory management by attracting external attention and increasing auditor monitoring, which in turn improves inventory management efficiency and operating performance. Our findings suggest that KAM disclosure changes firms' managerial behaviours and generates a positive externality on real operations.

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