Abstract
This study investigates whether key audit matters (KAMs) in audit reports impact accounting for goodwill impairment and investors' decision-making. Using a matching-based difference-in-difference estimator, this study finds that small audit firms fail to compel managers to promptly impair goodwill but cause further price distortion from goodwill inflation under the KAM reporting model. Additionally, negative press coverage improves the effectiveness of KAMs disclosed by small audit firms in goodwill accounting. Finally, KAMs disclosed by small audit firms will only mislead non-professional investors. This study extends the existing research on the association between audit reports, specific reporting quality, and resource allocation in the capital market.
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