Audit Style and Financial’ Statements Comparability “Evidence from Firms Listed on The Egyptian Stock Exchange” An Applied Study

Document Type : Original Article

Authors

1 Teaching Assistant of Accounting at Arab Open University in Egypt, Master of Science in Accounting

2 Associate Professor of Accounting at Eslsca University in Egypt Alexandria University Faculty of Business

3 Assistant professor of Accounting at Arab Academy for Science, Technology and Maritime Transport

Abstract

The purpose of this study is to investigate the effect of audit style on financial statements comparability. The term "audit style" is used to describe the distinct set of internal rules and operating procedures employed by each of the Big 4 audit firms to apply auditing standards and enforce accounting standards among its clients. Comparability is measured by how accruals and earnings structures of two businesses operating in the same industry are more similar. Firm size, leverage ratio, market to book ratio, sales revenue, sales growth, and cash flow from operations are used as control variables. The research sample consists of 30 Real Estate companies and 27 Food, Beverage and Tobacco companies listed on the Egyptian stock exchange from 2018 to 2022, resulting in a final sample of 1,410 firm-pair observations using stratified random sampling technique. The study provided evidence that audit style has a significant positive effect on financial statements comparability, as measured by the covariation in accruals and earnings. The findings show that there is higher comparability between firm-pairs in the same sector audited by the same Big 4 audit firm than those audited by different Big 4 audit firms. Moreover, improved comparability is found between firm-pairs audited by Big 4 audit firms than those audited by non-Big 4 audit firms.

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