Miscodings in Compustat's Auditor Variable: Issues, Identification, and Correction
21 Pages Posted: 23 Jul 2017
Date Written: July 21, 2017
Using a hand collected sample, I identify cases where Compustat miscodes the auditor variable. In some cases, this arises from the fact that following an auditor change, the previous auditor’s report remains in a firm’s 10-K, and Compustat occasionally codes the previous auditor as the current auditor. These miscodings have implications for both audit-specific research as well as general capital markets research. In this paper, I discuss an easily implementable methodology for identifying and correcting Compustat miscodings. I provide SAS code that implements the methodology, enabling researchers to easily identify and correct auditor miscodings. Further, I provide code to correct already identified miscodings for a sample of Compustat firms from 2001 to 2014. Aside from identifying and correcting miscodings, I note that a non-zero number of firms change to a new auditor and then, after only one year with the new auditor, switch back to the prior auditor.
Keywords: Auditor changes, Auditor tenure, Industry specialization, Big 4, Data integrity, Compustat
JEL Classification: M40
Suggested Citation: Suggested Citation