Auditor Style and Financial Statement Comparability

52 Pages Posted: 26 Oct 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: October 18, 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 (October 18, 2013). Accounting Review, Vol. 89, No. 2, 2014. Available at SSRN: https://ssrn.com/abstract=2344985

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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