Seebeck, Andreas och Kaya, Devrimi (2022). The Power of Words: An Empirical Analysis of the Communicative Value of Extended Auditor Reports

Question 1

What is the main research question of the article?

Answer 1

Whether the communicative value of extended auditor reports improves after the implementation of ISA 700, and whether that information is useful to investors.

Question 2

What trend was observed over the first 3 years of ISA 700 implementation?

Answer 2

Continued improvement in communicative value, particularly in specificity of KAMs

Question 3

What KAM characteristic did investors respond to?

Answer 3

Specificity — more precise KAMs (with names, dates, amounts) led to:

• Higher abnormal trading volume
• Greater cumulative abnormal returns (CARs)

Question 4

What is the implication for auditors and regulators?

Answer 4

Detailed and specific auditor disclosures enhance investor decision-making and should be encouraged by standard setters.