The Effects of Key Audit Matters and Stock Ownership on Audit Committee Members’ Accounting Preferences

Michelle Höfmann, Christiane Pott () and Sandra Chrzan
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Michelle Höfmann: Independent Researcher, 45475 Mühlheim an der Ruhr, Germany
Christiane Pott: Faculty of Economics, TU Dortmund University, 44227 Dortmund, Germany
Sandra Chrzan: Faculty of Economics, TU Dortmund University, 44227 Dortmund, Germany

JRFM, 2024, vol. 17, issue 11, 1-21

Abstract: This study investigated the interactive effect of key audit matters (KAMs) and stock ownership on German audit committee (AC) members’ preferences regarding accounting issues in an experimental setting. Specifically, we explored whether the increased accountability of AC members to investors, resulting from KAM disclosures, is influenced by whether an AC member owns shares in the audited company. Our findings suggest that the disclosure of KAMs supports a conservative management accounting preference. However, KAMs can be used by stock-owning AC members as disclaimers that inform the investing public and might serve as legitimation tools for ACs with a preference for less conservative accounting. Hence, our study provides evidence from a two-tier governance country that audit committee members’ accounting preferences based on disclosed KAMs depend on their financial independence.

Keywords: audit report; key audit matters; audit committee; director stock ownership; financial reporting quality; audit committee members stock ownership (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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