Does considering key audit matters affect auditor judgment performance?

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Abstract

This study examines the impact of considering key audit matters (KAM) on auditor judgment performance. This study uses a 2×2 between-subjects experiment based on a goodwill impairment testing case with 73 auditors. The two independent variables KAM consideration (present vs. absent) and client pressure (high vs. low) are manipulated. As dependent variables, skeptical judgment and action as different facets of auditor judgment performance are used. The results suggest that auditors exhibit significantly less skeptical judgment when KAM consideration is present than when KAM consideration is absent. This implies that, when considering KAM, auditors are more willing to acquiesce to their clients’ desired accounting treatments due to moral licensing. By showing that KAM consideration leads to less skeptical judgment, it can be documented that the new KAM reporting requirement, intended to improve the communicative value of the auditor’s report for users (IAASB, 2012), comes at the expense of auditor judgment performance. As in every experiment, the risk that the results are case-specific has to be acknowledged.

Keywords: Key Audit Matters, Client Pressure, Auditor Judgment Performance, Motivated Reasoning, Goal Commitment, Moral Licensing

Authors’ individual contribution: Conceptualization – N.V.S.R.-S. and J.C.T.; Metodology – N.V.S.R.-S. and J.C.T.; Formal Analysis – J.C.T.; Investigation – N.V.S.R.-S. and J.C.T.; Resources – N.V.S.R.-S.; Writing – Original Draft – N.V.S.R.-S. and J.C.T.; Writing – Review & Editing– N.V.S.R.-S. and J.C.T.

Acknowledgements: We thank Anna Gold, the participants of workshops at the University of Central Florida, Orlando, the USA, and the University of Duisburg-Essen, Duisburg, Germany, as well as the participants of the 2017 International Symposium on Audit Research (ISAR), held in Sydney, Australia, the 2017 European Auditing Research Network Symposium, held in Leuven, Belgium, and the 2018 American Accounting Association Auditing Section Midyear Meeting, held in Portland, the USA, for their helpful comments on earlier versions of this paper.

JEL Classification: M42

Received: 17.10.2019
Accepted: 3.12.2019
Published online: 4.12.2019

How to cite this paper: Ratzinger-Sakel, N. V. S., & Theis, J. C. (2019). Does considering key audit matters affect auditor judgment performance? [Special issue]. Corporate Ownership & Control, 17(1), 196-210. https://doi.org/10.22495/cocv17i1siart4