Does Auditor Style Influence Non-GAAP Reporting?

58 Pages Posted: 24 Mar 2022 Last revised: 6 Apr 2022

See all articles by Frank Heflin

Frank Heflin

University of Georgia - J.M. Tull School of Accounting

Jacqueline Tan

University of Georgia - J.M. Tull School of Accounting

Karen Ton

Villanova University

Jasmine Wang

University of Virginia

Date Written: February 21, 2022

Abstract

We examine whether auditor style is associated with non-GAAP disclosures. Specifically, we find that clients audited by the same auditor are more likely to disclose non-GAAP earnings in a similar manner. We assess disclosure similarity using (1) the decision to disclose non-GAAP earnings, (2) the disclosure prominence of non-GAAP earnings, and (3) the discussion of non-GAAP earnings in the management discussion and analysis of the annual report. We find that the association between auditor style and non-GAAP disclosure is determined by Big 4 accounting firms and clients audited by the same audit office within an audit firm. We also find some evidence that auditor style is associated with clients’ choices to exclude recurring items and non-GAAP disclosure quality. Finally, the audit office level results are incremental to similarity that results from geographical proximity. Our results are relevant to current policy discussions regarding auditor involvement in unaudited non-GAAP earnings reporting.

Keywords: Auditor style, non-GAAP reporting, Big 4 accounting firms

Suggested Citation

Heflin, Frank and Tan, Jacqueline and Ton, Karen and Wang, Jasmine, Does Auditor Style Influence Non-GAAP Reporting? (February 21, 2022). Available at SSRN: https://ssrn.com/abstract=4040180 or http://dx.doi.org/10.2139/ssrn.4040180

Frank Heflin (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-1616 (Phone)
706-542-3630 (Fax)

Jacqueline Tan

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-3526 (Phone)

Karen Ton

Villanova University ( email )

800 E. Lancaster Ave
Villanova, PA 19085
United States

Jasmine Wang

University of Virginia ( email )

125 Ruppel Dr
306 Rouss and Robertson Hall
Charlottesville, VA 22903
United States

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