Using an eye-tracking and electrodermal device, this study investigates how readability and familarity of the Key Audit Matters (KAMs) and investors’ professional skepticism jointly affect individuals’ attention and assessment of risk associated with KAMs. We predict and find that only when investors are familiar with the information discussed in the KAM, readability will affect their visual attention to the KAMs. When investors are unfamiliar with KAMs, professional skepticism becomes the main driver of their attention allocation. Furthermore, we distinguish dedicated visual attention and absent-minded visual attention, arguing that the positive correlation only exist between dedicated visual attention on the information and the relative importance of each information in decision-making. Consistent with this argument, we prove that the informative value of Why (How) Paragraph is more important to investors in risk assessment when they are unfamiliar (familiar) with the KAMs. Our results should be of interest to regulators and auditors as they consider what and how to communicate KAMs in the audit report.

The Interactive Effect of Key Audit Matters' Form and Content on Investors' Information Processing and Decision Making: Evidence from an Eye-Tracking Study.

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 AAA 2020 Virtual Annual Meeting and Conference on Teaching and Learning

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