The objective of this study is to examine the effects of key audit matters (KAM) disclosures in the audit reports on the analysts’ earnings forecast. Using 2016-2018 Taiwan listed companies as sample, the results generally support the conclusion that KAM disclosure indeed increases the informative value of an audit report. We provide evidence that analysts’ forecast behavior is not affected by the number of KAM items. By contrast, when the audit report of a company has more detailed KAM disclosures, the more accurate and less dispersed the analysts’ earnings forecast will be. We further divide the content of KAM into descriptions of KAM items and the auditors’ corresponding audit procedures for each KAM item, doing so to uncover what analysts are concerned about and how these concerns influence their forecast behavior. We find that analysts are more concerned with KAM descriptions than with the corresponding audit procedures. Overall, this study provides local evidence for the effectiveness of the new standard from the perspective of professional users of financial report. The results enhance our understanding of the incremental information value of new audit report.
