An event and earnings management study of a Key Audit Matters disclosure

McNamara, Ray, Kelly, Simone, and Mathews, Jestin (2018) An event and earnings management study of a Key Audit Matters disclosure. In: [Presented at the 41st Annual Conference of the European Accounting Association]. From: 41st Annual Conference of the European Accounting Association, 30 May - 1 June 2018, Milan, Italy.

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This paper examines the events that follow from a critical audit matter (now called a Key Audit Matter, KAM) to determine its economic consequences and whether these events constitute a response to prior earnings management or other explanations such as a “big bath’ by an incoming CEO or a corporate response to a whistle blowing event related to the KAM. A single-firm event study with key competitors comparison assesses the economic consequences of twelve events (including write downs and fines) and an earnings management study assesses the motivation for the events. The methodology combines the insight of a case study analysis with the statistical bench-marking of a larger-sample study. The results show the events had a significant economic implication while the earnings management analysis places the company’s abnormal accruals in lower five percent of the companies making up the FTSE350 and the lowest seven percent of the industry sector. The study provides a single case analysis of a now compulsory auditjudgment disclosure. The wealth effect of the inncoming CEO’s decisions on the investing public exceeded £1.27 billion plus significant investigatory costs and subsequent fines to the company.

Item ID: 56636
Item Type: Conference Item (Presentation)
Keywords: Key Audit Matters, event study, earnings management, United Kingdom, Big Bath
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Copyright Information: (c) European Accounting Association 2018
Date Deposited: 24 Nov 2020 02:46
FoR Codes: 15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1501 Accounting, Auditing and Accountability > 150102 Auditing and Accountability @ 100%
SEO Codes: 90 COMMERCIAL SERVICES AND TOURISM > 9002 Property, Business Support Services and Trade > 900202 Professional, Scientific and Technical Services @ 90%
91 ECONOMIC FRAMEWORK > 9102 Microeconomics > 910206 Market-Based Mechanisms @ 10%
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