Auditors' interpretation of risk and the quality of analysts' earnings forecasts: Evidence from textual analysis of key audit matters

This study examines the impact of key audit matters (KAMs) on the quality of analysts' earnings forecasts in the emerging Chinese market. The nature of KAMs is auditors' interpretations of the risk of material misstatements. Based on a quasi‐natural experimental environment created by the phased adoption of communicating KAMs in the emerging Chinese market, we find that communicating KAMs can improve the quality of analysts' earnings forecasts …