Melbourne Accounting Research Seminar - Professor Abe de Jong

Professor Abe de Jong of the Erasmus University presented a MARS seminar.

Topic: Does Individual Auditor Style Influence Accounting Comparability? Evidence from Germany

Abstract: This paper tests whether the “style” of individual auditors impacts accounting comparability. Specifically, we investigate if having the same auditor explains the level of abnormal accruals reported by different client firms. We apply fixed effects models to measure  the style of individual partners on the audit quality of German corporations. The German audit environment is one of the few that requires listed companies to report the names of individual engagement and review partners. Moreover, the German audit market is characterized by high reputation risk, standardized auditor training and strict control mechanisms in work procedures. These unique characteristics are likely to translate into uniform levels of audit quality. Nonetheless, our results suggest that, after controlling for audit firm and office effects, the style of individual audit partners has a detectable influence on the abnormal accruals of their clientele. Our findings suggest that individual auditor effects are not subsumed by firm and office effects and that all effects are individually significant when included in the same model. This outcome is consistent with audit quality being a function of distinct firm, office, and individual auditor styles in German corporations.