Audit Partner Style and Financial Statement Comparability: New Evidence from the U.S. Market
76 Pages Posted: 13 Aug 2019 Last revised: 15 Jun 2021
Date Written: May 1, 2021
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 (accruals similarity, audit fees, and audit report lag), 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 15.94% decrease in the mean difference in discretionary accruals compared to a 6.5% (0.07%) decrease for firm pairs audited by the same Big 4 audit office (Big 4 audit firm). Our results are robust to controlling for product similarity, auditor switching, propensity score matching, placebo tests, and self-selection tests. Our findings support the PCAOB’s assertion that internal firm monitoring mechanisms are not enough to fully overcome individual partner’s agency-related incentives and that audit partners are able to exert their own personal style on the financial statements of the firms they audit.
Keywords: audit, audit partner, comparability, agency theory
JEL Classification: M4, M41, M42
Suggested Citation: Suggested Citation