Financial statement comparability and audit pricing

This study examines the impact of financial statement comparability on audit pricing. Using the comparability measures of De Franco, Kothari and Verdi, we find that auditors charge lower audit fees for clients with greater financial statement comparability. This negative relation is more pronounced...

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Bibliographic Details
Published in:Accounting and finance (Parkville) 2022-12, Vol.62 (5), p.4631-4661
Main Authors: Sun, Jinghui, Li, Liuchuang, Qi, Baolei
Format: Article
Language:English
Subjects:
audit effort
Audit engagements
audit pricing
audit risk
financial statement comparability
Financial statements
Pricing policies
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Summary:This study examines the impact of financial statement comparability on audit pricing. Using the comparability measures of De Franco, Kothari and Verdi, we find that auditors charge lower audit fees for clients with greater financial statement comparability. This negative relation is more pronounced when auditors are industry specialists or clients in industries with higher operational heterogeneity. We also find that clients with greater financial statement comparability have lower audit risk, and their auditors exert less audit effort to provide assurance. Our study contributes to the current literature by documenting that homogeneity in financial statement reporting decreases audit risk and increases audit efficiency, reducing audit pricing.
ISSN:0810-5391
1467-629X
DOI:10.1111/acfi.12970