Accounting Comparability, Audit Effort, and Audit Outcomes

• In Event: Audit Fees, Non-audit Fees, and Audit Effort
  In Paper Session: Audit Fees, Non-Audit Fees, and Audit Effort

Abstract

The paper investigates the usefulness of accounting comparability for audit engagement. Comparability among peer firms in the same industry reflects the similarity and the relatedness of firms’ operating environment and accounting reporting. From two perspectives of “inherent audit risk” and “external information efficiency”, comparability is helpful for auditors to assess client audit risk and lowers the cost of information acquisition, processing, and testing. We hypothesize that the availability of information about comparable firms is helpful for auditors by improving audit accuracy and audit efficiency. The empirical results show that accounting comparability is positively associated with audit quality and audit report accuracy as of a clean or a going-concern opinion. Meanwhile, comparability is negatively related to audit effort (surrogated by audit delay and audit fees). In totality, the study shows that industry-wise comparability enhances the utility of accounting information for external audit.

Author

• Joseph H. Zhang, The University of Memphis