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153
臺大管理論叢
第
28
卷第
2
期
Auditor Quality Attributes, the Comparability of Financial
Statements and Investment Efficiency
1. Purpose/Objective
The aim of this paper is to investigate the impact of audit quality attributes, namely
audit firm tenure and auditor partner experience, on firm-level comparability, and to
analyze the economic consequences of comparability by examining the effect of
comparability on investment efficiency. The concept framework for financial reporting
states that “comparability is the qualitative characteristic that enables users to identify and
understand similarities and differences among items. Unlike the other qualitative
characteristics, comparability does not relate to a single item. A comparison requires at
least two items.” There are four reasons that explain why comparability has increasingly
drawn the attention of scholars and practitioners. First, International Financial Reporting
Standards (IFRS) adoption improves the comparability of a financial statement. Second,
comparability affects the information processing costs of financial analysts. Third, survey
results show that the deviation from industry norms for the adoption of accounting
principle (i.e., input of comparability) is a red flag (Dichev, Graham, Harvey, and
Rajgopala, 2013). Fourth, frequently researched measures of earnings quality (i.e., accrual
quality, persistence, and conservatism) do not clearly indicate what quality is, and new
insights are needed (Dechow, Ge, and Schrand, 2010).
Extant studies indicate that good audit quality attributes can enhance earnings quality.
The magnitude of accruals earnings management decreases or the earnings response
coefficient increases as an audit firm tenure increases (Johnson, Khurana, and Reyndds,
2002; Ghosh and Moon, 2005). Experienced auditors always outperform inexperienced
ones in audit tasks, for example, judgment or material assessment (Messier, 1983;
Krogstad, Ettenson, and Shanteau, 1984; Libby and Frederick, 1990; Choo and Trotman,
1991; Shelton, 1999). In addition, Article 6 of Regulations Governing the Preparation of
Financial Reports by Securities Issuers states that when an issuer changes an accounting
policy voluntarily in a new financial year, it shall request a certified public accountant
(CPA) to provide an item-by-item analysis and review opinion on the reasonableness of
the nature of the change in accounting policy, the reasons why applying the new
accounting policy provides reliable and more relevant information, each line item affected
and the estimated effect for the financial year preceding the earliest financial year affected
Kuei-Fu Li
, Associate Professor, Department of Accounting, National Pingtung University