The Power of Words: An Empirical Analysis of the Communicative Value of Extended Auditor Reports
Seebeck A, Kaya D (2022)
Publication Type: Journal article
Publication year: 2022
Journal
DOI: 10.1080/09638180.2021.2021097
Abstract
We examine the communicative value of extended auditor reports in the United Kingdom (UK), where ISA 700 (UK and Ireland) requires auditors to disclose the risks of material misstatement that had the greatest effect on the audit–key audit matters (KAM). By using methods from computational linguistics, we find that different proxies for communicative value (i.e., readability, evaluative content, visual aids, and specificity) improve in post-ISA 700 periods. Cross-sectional tests show that the improvement differs across audit firms and audit clients as well as KAM disclosure characteristics. Finally, broadly consistent with concurrent studies, we find no evidence that several proxies for communicative value are informative to investors. However, we find initial evidence that a more specific description of KAM is significantly and positively associated with capital market reactions, suggesting that investors value precise information. Overall, this study directly responds to the call for more research on how KAM are worded.
Authors with CRIS profile
Andreas Seebeck
Lehrstuhl für Betriebswirtschaftslehre, insbesondere Rechnungswesen und Prüfungswesen
Devrimi Kaya
Involved external institutions
Germany (DE)How to cite
APA:
Seebeck, A., & Kaya, D. (2022). The Power of Words: An Empirical Analysis of the Communicative Value of Extended Auditor Reports. European Accounting Review. https://dx.doi.org/10.1080/09638180.2021.2021097
MLA:
Seebeck, Andreas, and Devrimi Kaya. "The Power of Words: An Empirical Analysis of the Communicative Value of Extended Auditor Reports." European Accounting Review (2022).
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