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Auditor benchmarking of client disclosures

Author

Listed:
  • Michael S. Drake

    (Brigham Young University)

  • Phillip T. Lamoreaux

    (Arizona State University)

  • Phillip J. Quinn

    (University of Washington)

  • Jacob R. Thornock

    (Brigham Young University)

Abstract

We examine auditors’ disclosure benchmarking, which we define as auditors’ acquisition of nonclient financial statement information for the purpose of evaluating a client’s financial statement information. Employing a novel dataset that captures auditors’ access of nonclient annual and quarterly SEC filings on EDGAR, we predict and find that auditors engage in disclosure benchmarking when auditing clients are faced with higher levels of authoritative guidance, financial-reporting uncertainty, and litigation risk. Lastly, we predict that auditors incorporate the information they obtain into their audit. Consistent with our prediction, disclosure benchmarking is positively associated with a client’s financial statement disaggregation, and client footnotes exhibit greater comparability to targeted nonclients’ footnotes after disclosure benchmarking. Overall, this study offers an empirical look into the “black box” of the audit process.

Suggested Citation

  • Michael S. Drake & Phillip T. Lamoreaux & Phillip J. Quinn & Jacob R. Thornock, 2019. "Auditor benchmarking of client disclosures," Review of Accounting Studies, Springer, vol. 24(2), pages 393-425, June.
    • Handle: RePEc:spr:reaccs:v:24:y:2019:i:2:d:10.1007_s11142-019-09490-3
    DOI: 10.1007/s11142-019-09490-3
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    References listed on IDEAS

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    Cited by:

    1. Hallman, Nicholas J. & Kartapanis, Antonis & Schmidt, Jaime J., 2022. "How do auditors respond to competition? Evidence from the bidding process," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    2. Christensen, Brant E. & Newton, Nathan J. & Wilkins, Michael S., 2024. "Costs and benefits of a risk-based PCAOB inspection regime," Accounting, Organizations and Society, Elsevier, vol. 112(C).
    3. Jiang, George & Kenchington, David & McLemore, Ping & Yüksel, H.Zafer, 2024. "Disaggregation quality, stock returns, and institutional demand," Finance Research Letters, Elsevier, vol. 62(PB).
    4. Bernard, Darren & Blackburne, Terrence & Thornock, Jacob, 2020. "Information flows among rivals and corporate investment," Journal of Financial Economics, Elsevier, vol. 136(3), pages 760-779.

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    More about this item

    Keywords

    Disclosure benchmarking; Audit process; Information acquisition; Client financial reporting; EDGAR filings;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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