Auditor Style and Financial Statement Comparability
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The term “audit style” is used to characterize the unique set of internal working rules of each Big 4 audit firm for the implementation of auditing standards and the enforcement of GAAP within their clienteles. Audit style implies that two companies audited by the same Big 4 auditor, subject to the same audit style, are more likely to have comparable earnings than two firms audited by two different Big 4 firms with different styles. By comparable we mean that two firms in the same industry and year will have a more similar accruals and earnings structure. For a sample of U.S. companies for the period 1987 to 2011, we find evidence consistent with audit style increasing the comparability of reported earnings within a Big 4 auditor's clientele.
This accepted article is published as Jere R. Francis, Matthew L. Pinnuck, and Olena Watanabe (2014) Auditor Style and Financial Statement Comparability. The Accounting Review: March 2014, Vol. 89, No. 2, pp. 605-633. Doi: 10.2308/accr-50642. Posted with permission.