MD&A Textual Similarity and Auditors

Auditing: A Journal of Practice & Theory 39 (3): 79–96. https://doi.org/10.2308/ajpt-52790

55 Pages Posted: 15 Jan 2014 Last revised: 26 Jun 2020

See all articles by Gus De Franco

Gus De Franco

Tulane University - A.B. Freeman School of Business

Hila Fogel-Yaari

University of Texas at Arlington - Department of Accounting

Heather Li

Bentley University - Department of Accountancy

Date Written: Feb 13, 2020

Abstract

This study examines the relation between auditors and the unaudited Management Discussion and Analysis (MD&A). We show that MD&As are more textually similar when firms share the same auditor. This result suggests that auditors influence MD&As to be more textually similar merely by reviewing the MD&A. We next show that auditor-related MD&A similarity is positively associated with MD&A readability and that the market reacts to auditor-related MDA modifications. These results provide modest evidence that auditor-related MD&A similarity may improve the MD&A’s disclosure quality, consistent with the general idea that more audit influence is a positive financial reporting characteristic.

Keywords: MD&A; disclosure quality; textual similarity; auditors

JEL Classification: M49

Suggested Citation

De Franco, Gus and Fogel-Yaari, Hila and Li, Heather, MD&A Textual Similarity and Auditors (Feb 13, 2020). Auditing: A Journal of Practice & Theory 39 (3): 79–96. https://doi.org/10.2308/ajpt-52790, Available at SSRN: https://ssrn.com/abstract=2378583

Gus De Franco

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Hila Fogel-Yaari (Contact Author)

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

Heather Li

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States

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