Key Audit Matters: Just Little Informative Value to Investors in Emerging Markets?

Abstract

The main objective of this study is to investigate whether key audit matters (KAMs) in new audit reports provide informative value to investors. The study employs stock prices as a dependent variable to urge investors’ responsiveness when new evidence (i.e. KAMs mentioned in audit reports) is announced to stock markets.  Stock prices cover three periods of analysis: the average seven days before event date (audit report date), at event date, and the average seven days after event date. Independent variables include KAMs and control variables (size, leverage ratio, current assets/current liabilities, EPS). The samples include the common stocks of the top 100 Thai listed companies (SET 100) in the Stock Exchange of Thailand as a representative of emerging markets. Univariate, correlations, and multivariate regression models are performed.  The data analysis results show that KAMs have little informative value to investors.  However, financial ratios, especially earnings per share are significantly associated with stock prices in positive manner.  The results also suggest that the KAMs relating to a provision for doubtful debt have a positive and significant relationship to stock prices.