1. Critical Audit Matter Modifications Affect Investors: Evidence from Taiwan Sheng-Feng (Philip) Hsieh Ph.D. Student in Accounting Information Systems Rutgers, the State University of New Jersey
43rd World Continuous Auditing & Reporting Symposium
November 3rd, 2018

2. The title of CAMs
The description of CAMs
The audit procedures to address CAMs

3. Critical Audit Matters (CAMs)
“…the communication of CAMs could enhance the value and relevance of audits to the capital markets and be useful to investors and other financial statement users in assessing a company’s financial reporting and making capital allocation and voting decisions.” -- Securities and Exchange Commission, 2017 “As discussed in the Commission’s approval order, some commenters raised questions about the PCAOB’s rule. These questions included… whether CAMs will convey meaningful information specific to the audit or will instead provide boilerplate…” -- the chairman of the SEC, Jay Clayton

4. Critical Audit Matters (CAMs)
The effective date to disclose the CAMs in auditor’s reports in the U.S.
June 30, 2019: for larger accelerated filers
December 15, 2020: for all other companies

5. Research Questions
What’s the implementation situation of mandating accounting firms to communicate CAMs of their clients in their auditor’s reports in Taiwan in fiscal years 2016 and 2017?
Do auditors of firms with economic changes modify CAM disclosures?
Do investors use the information revealed by CAM modifications?

6. Measure “modifications” - Cosine Similarity
Measure “modifications” - Cosine Similarity
(0-1)

7. Regression models
Do auditors of firms with economic changes modify CAM disclosures?
CosSim_CAM16-17 =  + 1WordCount_CAM 2SenCount_CAM 3Num_CAM 4BIG417 + 5ROE 6BasicEPS 7Leverage 8Size 9Acquire 10Downsize 11FCF 12SDWeeklyReturn 13LegalPersonRatio 14StockPrice Industry + 
Do investors use the information revealed by CAM modifications?
| CAR |18 =  + 1CosSim_CAM 2SenCount_CAM 3Num_CAM 4BIG417 + 5ROE17 + 6BasicEPS17 + 7Leverage17 + 8Size 9FCF17 + 10SDWeeklyReturn17 + 11LegalPersonRatio17 + Industry + 

8. Results

9. Results

10. Results

11. Results

15. Conclusions
Do auditors of firms with economic changes modify CAM disclosures?
(1) the change of the basic EPS, (2) the size, (3) the leverage level, (4) the standard deviation of weekly stock return, (5) the stock ratio held by legal persons, and (6) whether the company is audited by Big Four accounting firms may trigger CAM modifications in terms of cosine similarity.
Do investors use the information revealed by CAM modifications?
The more similar CAM disclosures in auditor’s reports (the more CAM items), The higher cumulative abnormal return magnitude.