Auditor Style and Comparability of Financial Statements: a Comparison of Audit Style in Iran and U.S.A.

Abstract

The term auditor style is used to determine a unique set of internal working rules each audit firm employs to perform audit standards and application generally accepted accounting principles between their clients. Audit style implies that two companies audited by the same auditor, subject to the same audit style, are more likely to have comparable earnings than two firms audited by two different audit firms with different styles. The sample consists of 63 companies listed in Tehran Stock Exchange for the period 2002 to 2013. The tests are based on pairs of firms and a total of 4344 pairs of firms as observations are used. In the present study correlation method and multiple regression are used and the means for comparing hypothesis test are performed. The findings show that the audit style of audit firms in the U.S leads to more similar in total accruals and discretionary accruals for their clients than to clients of audit firms in Iran. In other words, the comparability of financial statements of U.S companies with Iranian ones indicates more similarity in accruals and earnings structure.