Do Individual Auditors Have Style? Evidence from Clients’ Financial Statement Comparability in China.

The auditors’ role is to plan and perform audit procedures and to express opinions on client firms’ compliance with the accounting standards. As an important institution in the financial reporting process (Francis et al., 2003; Wysocki, 2011), high-quality auditors increase financial reporting quality as reflected in several properties (DeFond and Zhang, 2014, p. 287). Francis et al. (2013) were the first to show that clients audited by the same office-level auditors have more comparable financial statements. This phenomenon is called auditor style.

In this study, we seek to extend Francis et al. (2013) and investigate whether individual auditors have their own style by examining their clients’ financial statement comparability. Following Francis et al. (2013), we define individual auditor style as an individual auditor’s idiosyncratic approach to implement audit standards and enforcing accounting standards. Drawing on the literature, we propose two competing views on individual auditor style. On the one hand, the behavioral auditing literature suggests that an individual auditor has style as one’s judgement is affected by his/her distinct and nontransferable experience and ability (e.g., Libby and Luft 1993; Nelson and Tan, 2005). On the other hand, audit firms adopt several policies to standardize their audits (Ferguson et al., 2003; Francis et al., 2013) and therefore the individual auditor’s style should not be salient. As a result, it is ex ante unclear whether individual auditors have their own unique style as reflected in the comparability of their audited financial statements (individual auditor style hypothesis).

We plan to further examine whether individual auditor style differs among disparate types of organizations (international Big Four versus local Big Six auditing firms) and audit expertise. We plan to take advantage of China’s unique setting and examine our research questions in the post-IFRS (international financial reporting standards) period. By doing so, this study will extend that of Francis et al. (2013) and the individual auditor literature and show whether individual auditors have a style as reflected in their comparability. This study will also advance our understanding on the role of the micro- level (individual auditor) rather than the macro-level institutions observed in the IFRS implementation process. Given that investors and financial analysts routinely use multiple methods to predict firm value, this study will also be of interest to practitioners. As such, we believe that this study will have important implications for standard setters, regulators, and practitioners.