IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v17y2024i11p525-d1525143.html
   My bibliography  Save this article

The Effects of Key Audit Matters and Stock Ownership on Audit Committee Members’ Accounting Preferences

Author

Listed:
  • Michelle Höfmann

    (Independent Researcher, 45475 Mühlheim an der Ruhr, Germany)

  • Christiane Pott

    (Faculty of Economics, TU Dortmund University, 44227 Dortmund, Germany)

  • Sandra Chrzan

    (Faculty of Economics, TU Dortmund University, 44227 Dortmund, Germany)

Abstract

This study investigated the interactive effect of key audit matters (KAMs) and stock ownership on German audit committee (AC) members’ preferences regarding accounting issues in an experimental setting. Specifically, we explored whether the increased accountability of AC members to investors, resulting from KAM disclosures, is influenced by whether an AC member owns shares in the audited company. Our findings suggest that the disclosure of KAMs supports a conservative management accounting preference. However, KAMs can be used by stock-owning AC members as disclaimers that inform the investing public and might serve as legitimation tools for ACs with a preference for less conservative accounting. Hence, our study provides evidence from a two-tier governance country that audit committee members’ accounting preferences based on disclosed KAMs depend on their financial independence.

Suggested Citation

  • Michelle Höfmann & Christiane Pott & Sandra Chrzan, 2024. "The Effects of Key Audit Matters and Stock Ownership on Audit Committee Members’ Accounting Preferences," JRFM, MDPI, vol. 17(11), pages 1-21, November.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:11:p:525-:d:1525143
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/17/11/525/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/17/11/525/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Daylian M. Cain & George Loewenstein & Don A. Moore, 2011. "When Sunlight Fails to Disinfect: Understanding the Perverse Effects of Disclosing Conflicts of Interest," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 37(5), pages 836-857.
    2. Joseph V. Carcello & Terry L. Neal, 2003. "Audit Committee Independence and Disclosure: choice for financially distressed firms," Corporate Governance: An International Review, Wiley Blackwell, vol. 11(4), pages 289-299, October.
    3. Alhababsah, Salem & Yekini, Sina, 2021. "Audit committee and audit quality: An empirical analysis considering industry expertise, legal expertise and gender diversity," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Waymond Rodgers & Andrés Guiral & José Gonzalo, 2009. "Different Pathways that Suggest Whether Auditors’ Going Concern Opinions are Ethically Based," Journal of Business Ethics, Springer, vol. 86(3), pages 347-361, May.
    2. Kartal, Melis & Tremewan, James, 2018. "An offer you can refuse: The effect of transparency with endogenous conflict of interest," Journal of Public Economics, Elsevier, vol. 161(C), pages 44-55.
    3. Ismayilov, Huseyn & Potters, Jan, 2013. "Disclosing advisor's interests neither hurts nor helps," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 314-320.
    4. Effron, Daniel A. & Raj, Medha, 2021. "Disclosing interpersonal conflicts of interest: Revealing whom we like, but not whom we dislike," Organizational Behavior and Human Decision Processes, Elsevier, vol. 164(C), pages 68-85.
    5. Miglani, Seema & Ahmed, Kamran & Henry, Darren, 2015. "Voluntary corporate governance structure and financial distress: Evidence from Australia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(1), pages 18-30.
    6. Sheng‐Fu Wu & Chung‐Yi Fang & Wei Chen, 2020. "Corporate governance and stock price crash risk: Evidence from Taiwan," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1312-1326, October.
    7. Felix Kwabena Danso & Michael Adusei & Beatrice Sarpong-Danquah & Kwadwo Boateng Prempeh, 2024. "Board expertise diversity and firm performance in sub-Saharan Africa: do firm age and size matter?," Future Business Journal, Springer, vol. 10(1), pages 1-20, December.
    8. Bazerman, Max H. & Sezer, Ovul, 2016. "Bounded awareness: Implications for ethical decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 136(C), pages 95-105.
    9. Weißmüller, Kristina Sabrina, 2025. "Dangerous Morality. How Moral Licensing Undermines the Fight against Administrative Corruption, and How to Fix it," OSF Preprints kt2v7_v1, Center for Open Science.
    10. Palmeira, Mauricio, 2020. "Advice in the presence of external cues: The impact of conflicting judgments on perceptions of expertise," Organizational Behavior and Human Decision Processes, Elsevier, vol. 156(C), pages 82-96.
    11. Yuanto Kusnadi & Kwong Sin Leong & Themin Suwardy & Jiwei Wang, 2016. "Audit Committees and Financial Reporting Quality in Singapore," Journal of Business Ethics, Springer, vol. 139(1), pages 197-214, November.
    12. Sah, Sunita & Loewenstein, George, 2015. "Conflicted advice and second opinions: Benefits, but unintended consequences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 130(C), pages 89-107.
    13. Salau O. Abdulmalik & Ayoib Che Ahmad, 2015. "The Effect of 2011 Revised Code of Corporate Governance on Pricing Behaviour of Nigerian Auditors," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2015(4), pages 45-65.
    14. Areneke, Geofry & Adegbite, Emmanuel & Tunyi, Abongeh, 2022. "Transfer of corporate governance practices into weak emerging market environments by foreign institutional investors," International Business Review, Elsevier, vol. 31(5).
    15. Barasch, Alixandra & Levine, Emma E. & Schweitzer, Maurice E., 2016. "Bliss is ignorance: How the magnitude of expressed happiness influences perceived naiveté and interpersonal exploitation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 137(C), pages 184-206.
    16. George Loewenstein & Daylian M. Cain & Sunita Sah, 2011. "The Limits of Transparency: Pitfalls and Potential of Disclosing Conflicts of Interest," American Economic Review, American Economic Association, vol. 101(3), pages 423-428, May.
    17. Leiby, Justin, 2018. "The role of consultants and management prestige in management control system adoption," Accounting, Organizations and Society, Elsevier, vol. 66(C), pages 1-13.
    18. Ashiru, Folajimi & Adegbite, Emmanuel & Frecknall-Hughes, Jane & Daodu, Olabisi, 2024. "Reliability of the audit committee in weak institutional environments: Evidence from Nigeria," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 57(C).
    19. Roman Inderst & Kiryl Khalmetski & Axel Ockenfels, 2019. "Sharing Guilt: How Better Access to Information May Backfire," Management Science, INFORMS, vol. 65(7), pages 3322-3336, July.
    20. Kartal, Melis & Tremewan, James, 2018. "An offer you can refuse: The effect of transparency with endogenous conflict of interest," Journal of Public Economics, Elsevier, vol. 161(C), pages 44-55.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:17:y:2024:i:11:p:525-:d:1525143. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.