The consequences of expanded audit reporting: implications of tax key audit matters for tax attribute valuation and auditor-provided tax services

Daniel P. Lynch (), Aaron Mandell () and Linette M. Rousseau ()
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Daniel P. Lynch: University of Wisconsin-Madison
Aaron Mandell: University of Wisconsin-Milwaukee
Linette M. Rousseau: University of Houston

Review of Accounting Studies, 2025, vol. 30, issue 4, No 20, 3894-3953

Abstract: Abstract This study examines the consequences of tax key audit matters (KAMs) to the valuation of tax attributes and to auditor-provided tax services (APTS). The literature finds that KAM adoption is not associated with investor or audit outcomes, creating an impetus to identify whether specific KAM topics are more consequential. Tax KAMs are an ideal setting because they are prevalent, taxes are economically important, and auditors can provide tax services to their clients. We find that investors discount the tax avoidance and deferred tax assets of tax-KAM companies, suggesting an incentive for managers to avoid tax KAMs. Consistent with self-interest threats to auditor independence, we find that receiving a tax KAM is negatively associated with clients’ concurrent purchases of APTS, but that clients increase their future purchases of these services when they stop receiving tax KAMs. These results reveal novel consequences of tax KAMs to the valuation of companies’ tax attributes and to APTS incentives.

Keywords: Tax; Key audit matters; Critical audit matters; KAM; CAM; Auditor-provided tax services (search for similar items in EconPapers)
JEL-codes: H20 H25 M41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11142-025-09884-6

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