The Effect of Engagement Auditors on Financial Statement Comparability

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