Value Relevance of Board Attributes: The Mediating Role of Key Audit Matter

Romlah Jaffar, Nor Asyiqin Abu (), Mohamat Sabri Hassan and Mohd Mohid Rahmat
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Romlah Jaffar: Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Selangor, Malaysia
Nor Asyiqin Abu: Faculty of Accountancy, Universiti Tekhnologi MARA, Alor Gajah 78000, Melaka, Malaysia
Mohamat Sabri Hassan: Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Selangor, Malaysia
Mohd Mohid Rahmat: Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Selangor, Malaysia

IJFS, 2023, vol. 11, issue 1, 1-21

Abstract: The presence of board members with good governance attributes is value-relevant since it influences investors’ investment decisions. The value relevance is expected to improve with the newly introduced extended audit report to disclose key audit matters (KAMs). KAM disclosure provides information about issues faced by external auditors in the auditing of a company’s financial statement. Since the disclosure of KAM involves discussion and negotiation between the board and external auditor, it gives an indication that board value relevance can be affected by KAM disclosure. Using 931 firm-year observations from firms listed on the Bursa Malaysia between 2016 and 2019, this study re-examined the value relevance of the board and whether such value relevance improves with the disclosure of KAMs. The findings indicated that some board attributes influenced investors’ reactions negatively. The disclosure of KAM served as both an indirect mediator and a complementary mediator to increase the board’s value relevance. Investors reacted less negatively with KAM disclosure and companies’ values improved. The findings provide an insight into the role of KAM disclosure in reducing information asymmetry and assisting investors in making investment decisions. The findings support policymakers’ decisions to mandate the implementation of ISA 701, which requires the disclosure of KAMs.

Keywords: key audit matters; extended auditor’s report; board attributes; value relevance; mediation analysis (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2023
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