Auditor Style and Financial Reporting Similarity

Abstract

ABSTRACTIn this study, we examine whether auditor style is related to financial reporting similarity. Based on the count of accounting items disclosed in eXtensible Business Reporting Language (XBRL) 10-K filings, we define financial reporting similarity in terms of the number of similar line items reported by a pair of firms and develop a measure of pairwise financial reporting similarity. Consistent with the auditor style literature (e.g., Francis, Pinnuck, and Watanabe 2014), we show that firms that share the same auditor have more similarities in their financial statements. We find robust results using alternative metrics of auditor style, including pairwise comovement of audit fees and audit timeliness. We also find that financial reporting similarity increases (decreases) when firms switch from having different (the same) auditors to having the same (different) auditors.