Do Firms That Have a Common Signing Auditor Exhibit Higher Earnings Comparability?
54 Pages Posted: 26 Jun 2019
Date Written: June 9, 2019
We hypothesize that if individual auditors possess unique audit styles that they consistently apply to different audit engagements, then client firms with a common signing auditor will exhibit higher earnings comparability. Using a large sample of Chinese firms, we find that client firms report more comparable earnings when they are audited by the same individual auditor than when they are audited by (1) different audit firms, (2) the same audit firm but different audit offices, and (3) the same audit office but different individual auditors. The individual auditor style effect is stronger for larger audit firms, senior signing auditors, and signing auditors with more stable teamwork experience. We also document that having a common signing auditor is associated with lower analyst earnings forecast error and dispersion for client firms. This study contributes to the literature by showing that individual auditors have a significant impact on client firms’ earnings comparability.
Keywords: individual auditor style, earnings comparability, auditor demographic characteristics, teamwork experience
JEL Classification: M41, M42
Suggested Citation: Suggested Citation