Understanding Key Audit Matters: How Readability Boosts Analyst Forecast Precision in Indonesia's Early Implementation

ABSTRACT This study provides initial empirical evidence on whether the readability of Key Audit Matters (KAMs) enhances analyst forecast accuracy following the adoption of ISA 701 in Indonesia. KAMs are intended to improve the communicative value of audit reports by highlighting matters that, in the auditor's professional judgement, were of most significance in the audit. While prior studies have largely focused on the presence or quantity of KAM disclosures, this paper shifts attention to their linguistic clarity, a dimension critical to the practical usefulness of audit reports yet often overlooked in empirical auditing research. Using a sample of 188 firm‐year observations from 2022 to 2023, we measure KAM readability using the Flesch Reading Ease Score and conduct robustness checks using the Flesch–Kincaid Grade Level and Gunning Fog Index. The findings reveal a significant negative association between KAM readability and analyst forecast error, indicating that clearer audit language contributes to more accurate forecasts. Additional analysis reveals that this effect is more pronounced in firms audited by non‐Big 4 auditors, suggesting that readable KAMs play a compensatory role in lower‐assurance environments. When audit brand credibility is limited, stakeholders appear to rely more heavily on the accessibility and clarity of audit disclosures to assess financial reporting risks. By offering early evidence from an emerging market context, this study contributes to the auditing literature by reframing readability as a core determinant of KAM effectiveness and provides practical implications for auditors and regulators seeking to enhance the communicative value of audit reports. In sum, this analysis shows that KAM readability helps improve analyst forecast accuracy, not just as a matter of style, but as a useful signal of information quality, especially when audit credibility is limited.