Big 4 Differences’ Effects On Accounting Comparability

Comparability is an important part of the financial reporting information system. Prior literatures on accounting comparability mostly focused on the international accounting standards’ convergence and coordination. Recently, there are some literatures working on accounting comparability from the company level. However most of them concentrated in earnings managements and its influence on the analysts’ tracking analytical behavior. According to the definition, comparability means when facing with the same economic business, similar accounting system should generate similar financial reports. Obviously as regulators, auditors play an important role in the accounting system whose goal is to enable users to compare financial performance and make the right decisions. Therefore this paper argues that the auditor behavior can affect clientele’s accounting comparability.According to the Behavior Theory, auditor behavior can be affected by the specific audit environment. Audit firms’ inner characteristics, such as culture, value, and working standards, will affect its audit environment. However, the majority of prior literatures focused on the differences among "Big N" and "Non-Big N" and ignored the differences between "Big N" According to the Competition Theory, differentiation makes success. Therefore in order to survive, accounting firms should build up their own unique audit testing approach which give rise to what we term "audit style" in this paper. As an independent economic entity, each audit firm has its own unique in-house working rules for interpreting and applying accounting and auditing standards. Such unique audit style is the synthesis of all the inner characteristics of audit firms. And each audit firm’s style differs from that of another which will definitely affect its clientele’s accounting comparability.For a sample of Chinese A-share companies for period of 2006 to 2013, this paper intends to find out whether the style difference will exert influence on audit clientele’s accounting comparability. In the empirical test, we use accrual differences and earnings co-variation to measure comparability and build up multivariate regression model. We find evidence consistent with audit firm differences increasing the comparability within a Big 4 auditor’s clientele. This paper bring the comparability and audit research streams together to investigate the role of audit firms in comparability and contribute to the broader literature that examines the auditors’ role in the production of financial reports.