The Effect of Engagement Auditors on Financial Statement Comparability

53 Pages Posted: 5 Oct 2017

See all articles by Liuchuang Li

Liuchuang Li

Xi'an Jiaotong University (XJTU)

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Jieying Zhang

The University of Texas at Dallas

Date Written: October 3, 2017

Abstract

This paper examines whether engagement auditors have a distinguishable effect on clients’ financial statement comparability, incremental to the effect of the audit firms and offices. Our basic premise is that each individual auditor has a unique style of interpreting and implementing accounting and auditing standards, which may affect their clients’ financial statement comparability. We first show that the engagement-auditor fixed effect significantly improves the adjusted-R2 in explaining clients’ accrual comparability with industry peers, in addition to the audit-firm and audit-office fixed effect. We then document that engagement auditors’ past comparability style predicts their new clients’ accrual comparability, suggesting that the engagement auditors’ style persists over time. Finally, we find that within the same audit firm or office, two clients audited by the same engagement auditor have more comparable accruals than two clients audited by different engagement auditors. Taken together, our findings suggest that the engagement auditors have a distinguishable effect on clients’ financial statement comparability, incremental to the effect of the audit firms and offices.

Keywords: Financial statement comparability; Engagement auditor; Fixed effect

JEL Classification: M40, M41, M42

Suggested Citation

Li, Liuchuang and Qi, Baolei and Zhang, Jieying, The Effect of Engagement Auditors on Financial Statement Comparability (October 3, 2017). Available at SSRN: https://ssrn.com/abstract=3047631 or http://dx.doi.org/10.2139/ssrn.3047631

Liuchuang Li

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Jieying Zhang (Contact Author)

The University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083-0688
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
286
Abstract Views
1,216
rank
104,358
PlumX Metrics