Auditor Style and Financial Statement Comparability

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, subje...

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Published inThe Accounting review Vol. 89; no. 2; pp. 605 - 633
Main Authors Francis, Jere R., Pinnuck, Matthew L., Watanabe, Olena
Format Journal Article
LanguageEnglish
Published Sarasota American Accounting Association 01.03.2014
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ISSN0001-4826
1558-7967
DOI10.2308/accr-50642

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Summary: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.
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ISSN:0001-4826
1558-7967
DOI:10.2308/accr-50642