The effect of audit partner style on financial statement comparability

Abstract

ABSTRACT Several studies provide evidence that auditors play an important role in the implementation of accounting comparability. We extend this line of research by examining whether comparability in accounting earnings between two firms is affected by auditor industry expertise measured at the partner level. Using 45,741 pairs of firms over the period 2003–2016, we find that the accounting comparability between two firms in a pair is higher when they are audited by the same expert partner than when they are audited by the same non-expert partner. The findings suggest that the degree of accounting comparability within a partner’s clientele is influenced by the industry expertise of the individual audit partner. Specifically, expert partners are more likely to provide consistent implementation of auditing standards and enforcement of accounting standards across their client base. These findings are robust to various sensitivity tests including using alternative measures of comparability, industry expertise and pair-matching methods.