Investor reactions to key audit matters: Financial and non‐financial contexts

Hien Hoang, Robyn Moroney, Soon‐Yeow Phang and Xinning Xiao

Accounting and Finance, 2023, vol. 63, issue 3, 3325-3349

Abstract: We investigate how a disclosed risk item and key audit matter (KAM) relatedness combine to affect investors' riskiness assessment in financial and non‐financial contexts. When management disclose a high‐risk item, we find that investors react the same way across contexts with KAM relatedness having no effect. When management disclose a low‐risk item, investors react differently in each context. When a KAM is related to the disclosed financial (non‐financial) low‐risk item, investors assess investment riskiness higher (lower) than when a KAM is unrelated to the low‐risk item. Our findings indicate the varying communicative value of KAMs across financial and non‐financial contexts.

Date: 2023
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