Auditor Style and Financial Statement Comparability
52 Pages Posted: 26 Oct 2013
Date Written: October 18, 2013
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: Suggested Citation