Auditor Style and Financial Statement Comparability

Abstract

In the modern process of globalization, IFRS standards are widely used in the financial world, Russian Federation is one of these examples. The application of IFRS in Russian Federation first began in the early 90-ies of the twentieth century. During IFRS adoption many companies were involved in this process. Nowadays, a big part of all Russian companies obligatory use IFRS standards to prepare their statements. The purpose of this article is to analyse current practices of financial reporting procedures, its compliance with the rules of the IAS 1 as well as identifying the dependencies between the auditor selection and the quality of reporting. For this paper, a special Questionnaire was developed and for each selected organization a special profile, which included analysis of all financial statements for the period of the 2015 year was created. The study shows that the financial reports quality of the largest Russian companies on a high level. However, many companies face the problem of RAS and IFRS differences during reports transformation that directly influences its quality. During the study process it becomes clear, that auditor has a direct impact on the financial statements quality.

Auditor–Client Compatibility and Audit Firm Selection

“…Prior literature typically uses an all‐or‐nothing industry membership test to organize clients into similar groups . While the accounting systems and underlying economics of multiple organizations are not separately observable, their joint effect is presumably reflected in the financial statements (De Franco, Kothari, and Verdi [], Francis, Pinnuck, and Watanabe []) and related narrative disclosures. Consequently, we develop a continuous‐measure proxy for the degree of compatibility between a company and an auditor's existing clientele based on text retrieval using narrative‐based documents as the underlying data.…”

“…One way that compatibility may manifest is in the numbers included in the financial statements as examined in Francis, Pinnuck, and Watanabe []. However, the narrative disclosures of the financial statements are also critical to evaluating a company's performance, and are much harder to analyze.…”

“…First, we introduce a text‐based metric to measure auditor–client compatibility (similarity) based on a reference group of other companies clustered by audit firm and industry. In contrast to Francis, Pinnuck, and Watanabe [], we measure compatibility using the rich text disclosures of the 10‐K rather than the reported financial results (i.e., accruals). We demonstrate that there are significant differences across audit firms that cause a “clustering” of audit clients based on this similarity.…”

Narrative disclosures, firm life cycle, and audit fees

“…To account for reverse causality, it is important to conduct a change analysis in an audit fee study (Francis, Pinnuck, & Watanabe, ). Following this suggestion, we perform change analyses to examine whether changes in narrative disclosure properties are significantly associated with a change in audit fees.…”

Is there an association between accounting firm ranks and audit quality? An examination of the top 100 accounting firms in China

“…Prior literature suggests that factors such as employee characteristics (Cahan & Sun, ; Gul, Wu, & Yang, ), legal actions against firms (Cahan & Zhang, ), and specialized training (Cahan & Sun, ; Francis, Pinnuck, & Watanabe, ) influence audit quality. This literature implies that, to the extent that the additional firm characteristics included by CICPA are related to audit inputs, they have the potential to affect the audit process, and thus audit outcomes (Francis, ).…”