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The role of audit styles in financial statement comparability: South African evidence

The role of audit styles in financial statement comparability: South African evidence This study investigates the role of audit styles at different levels on financial statement comparability in South Africa, a setting where firms report under International Financial Reporting Standards (IFRS), the institutional environment is strong and the audit environment is dominated by the Big 4 audit firms. An output‐based comparability measure is used to consider the association between audit styles at a firm level, audit office level and individual auditor level and financial statement comparability. Evidence of audit style effects on financial statement comparability is found at the three different levels—the audit firm, the audit office and the individual auditor. The study further finds some evidence that audit office style dominates audit firm style and individual auditor style dominates audit office style. This finding suggests that even in countries where internal (within the audit firm) and external (country regulations) control mechanisms are strong, the audit style of the individual auditor is present and associated with increased financial statement comparability. Using a setting where firms report under IFRS further suggests that in a principles‐based environment, despite strong internal controls and in‐house working rules by audit firms, individual auditors continue to have some level of autonomy in the interpretation and application of the accounting principles and in‐house working rules. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Auditing Wiley

The role of audit styles in financial statement comparability: South African evidence

Smith, Christelle
International Journal of Auditing , Volume 26 (4) – Oct 1, 2022
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18 pages

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Publisher
Wiley
Copyright
© 2022 John Wiley & Sons Ltd
ISSN
1090-6738
eISSN
1099-1123
DOI
10.1111/ijau.12296
Publisher site
See Article on Publisher Site

Abstract

This study investigates the role of audit styles at different levels on financial statement comparability in South Africa, a setting where firms report under International Financial Reporting Standards (IFRS), the institutional environment is strong and the audit environment is dominated by the Big 4 audit firms. An output‐based comparability measure is used to consider the association between audit styles at a firm level, audit office level and individual auditor level and financial statement comparability. Evidence of audit style effects on financial statement comparability is found at the three different levels—the audit firm, the audit office and the individual auditor. The study further finds some evidence that audit office style dominates audit firm style and individual auditor style dominates audit office style. This finding suggests that even in countries where internal (within the audit firm) and external (country regulations) control mechanisms are strong, the audit style of the individual auditor is present and associated with increased financial statement comparability. Using a setting where firms report under IFRS further suggests that in a principles‐based environment, despite strong internal controls and in‐house working rules by audit firms, individual auditors continue to have some level of autonomy in the interpretation and application of the accounting principles and in‐house working rules.

Journal

International Journal of Auditing – Wiley

Published: Oct 1, 2022

Keywords: audit style; Big 4 audit firms; comparability

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