Auditor style and financial statement comparability

Accounting Publications Accounting 3-2014 Auditor Style and Financial Statement Comparability Jere R Francis University of Missouri Matthew L Pinnuck The University of Melbourne Olena Watanabe Iowa State University, watanabe@iastate.edu Follow this and additional works at: https://lib.dr.iastate.edu/acct_pubs Part of the Accounting Commons, Business Administration, Management, and Operations Commons, Business Analytics Commons, Corporate Finance Commons, Finance and Financial Management Commons, Portfolio and Security Analysis Commons, and the Strategic Management Policy Commons Recommended Citation Francis, Jere R.; Pinnuck, Matthew L.; and Watanabe, Olena, "Auditor Style and Financial Statement Comparability" (2014) Accounting Publications 12 https://lib.dr.iastate.edu/acct_pubs/12 This Article is brought to you for free and open access by the Accounting at Iowa State University Digital Repository It has been accepted for inclusion in Accounting Publications by an authorized administrator of Iowa State University Digital Repository For more information, please contact digirep@iastate.edu Auditor Style and Financial Statement Comparability Abstract The term “audit style” is used to characterize the unique set of internal working rules of each Big 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 auditor, subject to the same audit style, are more likely to have comparable earnings than two firms audited by two different Big 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 auditor's clientele Keywords earnings, comparability, Big accounting firms Disciplines Accounting | Business Administration, Management, and Operations | Business Analytics | Corporate Finance | Finance and Financial Management | Portfolio and Security Analysis | Strategic Management Policy Comments 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 This article is available at Iowa State University Digital Repository: https://lib.dr.iastate.edu/acct_pubs/12 ÿ ÿ 1234567ÿ95 ÿ 3ÿ4 4 ÿ95 5  5ÿ6 7 445 ÿ ÿ ÿ ÿ ÿ ÿ ÿÿ!"#ÿ $%&'()*+ÿ-.''+/+ÿ.0ÿ1&)23+))ÿ 4325+%)267ÿ.0ÿ82)).&%2ÿ -.'&9:2(;ÿ8?@@ÿ4ABÿ C%(3D2)E92)).&%2F+G&ÿ ÿ ÿ HIIÿJ" K!Lÿ C(D&'67ÿ.0ÿ1&)23+))ÿ(3GÿMD.3.92D)ÿ 4325+%)267ÿ.0ÿ8+':.&%3+ÿ 8+':.&%3+ÿN@@OÿB&)6%('2(ÿ 9P233&D*E&329+':F+G&F(&ÿ ÿ ÿ QRÿSIÿ -.''+/+ÿ.0ÿ1&)23+))ÿ T.U(ÿA6(6+ÿ4325+%)267ÿ B9+);ÿTBÿ>OO@@ÿ4ABÿ U(6(3(:+E2()6(6+F+G&ÿ ÿ ÿ VWIÿVIXÿKÿYZ[ÿY\Z]ÿ ÿ ÿ ÿ ÿ ^SÿI_LÿI_ÿ`"Ia#[ÿH"!_RÿbII`cÿ`ÿdÿbe[ÿ`ÿI_ÿIfaÿe"f#ÿWaÿI_"ÿ cK"`!ÿ`ÿ!a#IK!I"eÿ#Kcc#I"a#ÿSÿR#aÿgg!"IÿI_ÿ!ahhI#ÿaWÿfaL#_agÿ gI"!"gI#ÿIÿi "e#"IÿaWÿj"ka[ÿla!!a"ÿi "e#"I[ÿla`ÿi "e#"I[ÿdbmÿHaIR[ÿ neRÿi "e#"I[ÿH"!_"cÿoIIÿi "e#"I[ÿi "e#"IÿaWÿH"##aK"[ÿS#_"cIaÿi "e#"Iÿ"ÿ oIÿnaK"#[ÿ`ÿI_ÿ!ahhI#ÿaWÿgI"!"gI#ÿIÿI_ÿ KRÿhI"c#ÿaWÿI_ÿjh"!ÿj!!aKI"cÿ j##a!"I"aÿ`ÿI_ÿpII"aRÿohga#"KhÿaÿjK`"Iÿ#!_ÿÿ ÿ ÿ ÿ maI!IÿjKI_aXÿ ÿ!"#ÿ q\Zÿrs]ÿttYÿrZruÿ !"#vh"##aK"`Kÿ ÿ ÿ ÿ ÿ ÿ 2345678ÿ ÿ4ÿ55 ÿ 66  6ÿ785 56ÿ ÿ 2 2ÿÿ ÿ!"#$%ÿ&'()ÿ*+ÿ,+-.ÿ/0ÿ123431/-4*5-ÿ/2-ÿ,6*7,-ÿ+-/ÿ08ÿ*6/-4639ÿ:04;*6