The Public Company Accounting Oversight Board (PCAOB) recently expanded audit reports to disclose Critical Audit Matters (CAMs) and the audit procedures used to address them. We study the first wave of CAM disclosers from July 2019 to May 2020, which included large accelerated filers reporting on their 2019 fiscal year results. We examine whether market participants erroneously perceive firms with more extensive CAM disclosures to be riskier than firms with less extensive CAM disclosures. We find that firms with more extensive CAM disclosures are associated with increased perceived uncertainty: stock prices of these firms are significantly more volatile and analysts’ forecasts are significantly more dispersed than those of firms with less extensive CAM disclosures.
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Research Article|
December 06 2022
Critical Audit Matters: Possible Market Misinterpretation
Joshua Livnat
;
Joshua Livnat
UNITED STATES
Stern School of BusinessNYU and PGIM Quantitative Solutions
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Duo (Selina) Pei
;
Duo (Selina) Pei
UNITED KINGDOM
Warwick Business SchoolUniversity of Warwick
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Kate Suslava
Kate Suslava
Bucknell University
ACFM
202 Taylor Hall
UNITED STATES
Lewisburg
PA
17837
6462763297
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Received:
September 29 2020
Revision Received:
July 26 2021
Revision Received:
December 21 2021
Revision Received:
April 02 2022
Revision Received:
June 27 2022
Revision Received:
September 20 2022
Revision Received:
October 26 2022
Revision Received:
November 18 2022
Accepted:
November 29 2022
Online Issn: 1558-7991
Print Issn: 0278-0380
2022
AUDITING: A Journal of Practice & Theory (2022)
Citation
Julia Klevak, Joshua Livnat, Duo (Selina) Pei, Kate Suslava; Critical Audit Matters: Possible Market Misinterpretation. AUDITING: A Journal of Practice & Theory 2022; https://doi.org/10.2308/AJPT-2020-113
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