Do key audit matter disclosures about M&A transactions predict future performance?

Jessica A. Nylen (), Daniel D. Wangerin () and Karla M. Zehms ()
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Jessica A. Nylen: University of Wisconsin-Madison
Daniel D. Wangerin: University of Wisconsin-Madison
Karla M. Zehms: University of Wisconsin-Madison

Review of Accounting Studies, 2025, vol. 30, issue 3, No 3, 2264-2311

Abstract: Abstract This study examines whether auditor KAM disclosures about M&A transactions predict future performance outcomes. We find that auditors make more M&A KAM disclosures when M&A transactions are larger, involve targets with greater information asymmetry, and are subject to greater overpayment risk. When auditors disclose M&A KAMs in the acquisition year, we find an increased risk of larger goodwill impairments and that the association between acquired goodwill and changes in companies’ subsequent operating performance are significantly lower compared to when auditors do not issue an M&A KAM. We also find that the likelihood of forced CEO turnover is incrementally higher when subsequent operating performance is poor and auditors issue an M&A KAM compared to when they do not. Collectively, our findings suggest that these auditor disclosures reflect uncertainty that predicts weak post-acquisition performance and forced CEO turnover, incremental to other indicators of failed acquisition strategies.

Keywords: CEO turnover; Goodwill; Key audit matters; Mergers and acquisitions; Post-acquisition performance; Uncertainty (search for similar items in EconPapers)
JEL-codes: D82 G34 M41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11142-025-09896-2

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