Do Key Audit Matters Really Inform? Boilerplate Language, Textual Similarity, and Investor Reaction

Abstract

Auditing standards stipulate that KAMs should be specifically relevant to the situation at hand and not standardized in their wording, archival research examining the extent to which KAMs are communicated to investors has been inconsistent within and across different countries, sample years, and study approaches. The current review classifies fifteen pieces into fourteen articles based on how KAM disclosures were quantified rather than on results obtained, distinguishing presence versus magnitude, generic versus specific, and textual similarity. Work done at the coarsest level is consistent on non-existence but divided about what should be measured, whereas textual measures lead to similar conclusions: it is specificity that determines the link between disclosure and market reaction, while similarity moderates the extent of this relationship but does not have any impact on its own. Consistency of results follows the level of disclosure measurement. The number of boilerplates used in the UK increased almost twice during the post-reform era, whereas European issuers gathered boilerplates and specificity together.