We examine the relative importance of audit firm versus partner decision styles in key audit matter (KAM) reporting. Standard setters intended KAMs to increase the usefulness of the audit report by requiring the partner‐led engagement team to disclose engagement‐specific information about the most significant judgments they made during the audit. However, stakeholders expressed widespread concern that audit firms' longstanding efforts toward standardization would result in generic KAMs at the audit firm level and provide partners little opportunity or incentive for engagement‐specific reporting. We evaluate this high‐stakes tension between standard setters' goals for audit reporting and auditors' deep‐rooted practices by leveraging data from the United Kingdom, which has required partner identification since 2009 and expanded audit reports since 2013. We find that clients sharing the same partner receive KAMs that are 10% more textually similar than clients with different partners. In contrast, clients sharing the same audit firm receive KAMs that are just 2% more textually similar than clients with different audit firms. This implies that partner decision styles are more important in influencing KAM outcomes than audit firm styles. Collectively, our results suggest that partners make unique KAM reporting judgments, countering concerns that audit firms' efforts toward standardization will yield boilerplate KAMs. This evidence extends the literature on expanded audit reporting and partner decision styles and provides valuable insights into a contemporary issue in audit regulation with broader implications for understanding dynamics within the profession.

We advance social identity theory in the context of corporate governance research by evaluating how experiences outside the audit committee (AC) relate to AC members’ (ACMs’) professional identities and how these identities then map into ACMs’ responsibilities, how ACMs perceive that they add value, and how ACMs aid in the resolution of difficult judgments and decisions. We identify and evaluate four non-exclusive ACM social identities: executive management, financial management, investment management, and audit partner. We find that prior experiences relate to the social identities with which ACMs identify, yet identities also develop without role-relevant experiences. Interpreting the interviews leads us to propose a novel theory – mediational activism – a hybrid perspective whereby the ACM acts in multiple seemingly incongruent modes as a monitor, collaborator, and/or advocate with the intent to organize collective understanding, action, and mutually equitable outcomes. We find that ACMs’ perceptions of their primary role-relevant responsibilities are consistent with agency theory and extensive mediational activism, while perceptions of value-add are more consistent with the theory of resource dependence and reflect the desire to leverage prior experiences. Finally, we provide evidence on a host of difficult judgments and decisions that ACMs oversee, and find that they sometimes use typical negotiation strategies such as contending and compromising, but rarely resort to offering concessions. Employing these strategies differs based on social identities, but regardless of their identities ACMs most commonly approach their oversight role in resolving difficult judgments and decisions by adopting a mediational activism perspective.

We investigate labor market consequences for CFOs employed by fraud firms, focusing on reputational contagion for those who are not implicated. These individuals provide an opportunity to understand reputational contagion and the nuanced meaning of “guilt” because the labor market may suspect complicity or infer negligence regardless of whether that is truly the case. We compare these CFOs to a matched sample of non‐fraud CFOs and track both turnover and subsequent employment positions. Non‐implicated CFOs are more likely to experience turnover compared to non‐fraud CFOs, driven in particular by the public revelation of fraud to the labor market. We further find that non‐implicated CFOs are more likely to obtain comparable subsequent employment than non‐fraud CFOs before the fraud is publicly revealed, but not after. In supplementary analyses, we find that turnover rates are highest for non‐implicated CFOs who started their employment with the firm before the fraud began as compared to non‐implicated CFOs who started their employment after the fraud began. These results highlight the labor market significance of the public revelation of fraud and imply that the labor market does not fully distinguish between fraud firm association and general firm performance when making executive hiring decisions.

Regulators now require auditors to provide information about how they evaluate complex estimates. Because users encounter this auditor-provided information alongside management-provided information, we jointly examine the value relevance of these disclosures. We also examine whether visual cues in audit reports influence how nonprofessional investors use these disclosures. We find that disclosures from managers and auditors provide different value-relevant information about the same underlying issue. While users struggle to weight fully narrative auditor disclosures in their valuation judgments without corresponding management disclosures, visual cues facilitate their weighting of information about the audit. Specifically, users take increased price protection when auditor disclosures also include visual cues. However, consistent with market signaling theory, corresponding voluntary disclosures from management attenuate this price protection. This suggests management can mitigate negative valuation effects that may arise from auditor disclosures, and implies that visual cues in audit reports can prompt managers to increase disclosure transparency. Data Availability: Contact the authors.