Audit Partner Style and Financial Statement Comparability: New Evidence from the U.S. Market

Abstract

We investigate the effect of audit partner style on financial statement comparability in a U.S. setting using newly available data from 2016 to 2020. We document an audit partner style effect on comparability incremental to audit firm and audit office effects. Our results are consistent across several comparability measures, and our findings are economically significant. For example, controlling for the effect of the same Big 4 audit firm and office, the audit partner effect leads to a 12.59% decrease in the mean difference in abnormal accruals compared to a 4.4% decrease for firm pairs audited by the same Big 4 audit office. Our results withstand endogeneity and robustness tests including auditor switching tests, propensity score matching, placebo tests, controlling for clients’ economic similarity, and self-selection tests. Our findings suggest that the effect of audit partner style on financial statement comparability persists in highly regulatory environments and confirm the intuition of the PCAOB that the role of the engagement partner “is of singular importance” to the outcome of the audit (PCAOB 2011).

Keywords: audit, audit partner, comparability, agency theory

JEL Classification: M4, M41, M42