Auditor Style and Financial Statement Comparability

52 Pages Posted: 1 Jul 2013

See all articles by Jere R. Francis

Jere R. Francis

Maastricht University

Matt Pinnuck

University of Melbourne - Department of Accounting and Business Information Systems

Olena V. Watanabe

Iowa State University - Debbie and Jerry Ivy College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: June 21, 2013

Abstract

The term “audit style” is used to characterize the unique set of internal working rules of each Big 4 audit firm for the implementation of auditing standards, and the enforcement of GAAP within their clienteles. Audit style implies that two companies audited by the same Big 4 auditor, subject to the same audit style, are more likely to have comparable earnings than two firms audited by two different Big 4 firms with different styles. By comparable we mean that two firms in the same industry and year will have a more similar accruals and earnings structure. For a sample of U.S. companies for the period 1987 to 2011, we find evidence consistent with audit style increasing the comparability of reported earnings within a Big 4 auditor’s clientele.

Keywords: Earnings, Comparability, Auditor, Big 4 Accounting Firms

JEL Classification: M40, M41

Suggested Citation

Francis, Jere R. and Pinnuck, Matthew and Watanabe, Olena V., Auditor Style and Financial Statement Comparability (June 21, 2013). Available at SSRN: https://ssrn.com/abstract=2287631 or http://dx.doi.org/10.2139/ssrn.2287631

Jere R. Francis (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Matthew Pinnuck

University of Melbourne - Department of Accounting and Business Information Systems ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia

Olena V. Watanabe

Iowa State University - Debbie and Jerry Ivy College of Business ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

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