Auditor benchmarking of client disclosures

Michael S. Drake, Phillip Lamoreaux, Phillip J. Quinn, Jacob R. Thornock

    Research output: Contribution to journalArticle

    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.

    Original languageEnglish (US)
    JournalReview of Accounting Studies
    DOIs
    StatePublished - Jan 1 2019

    Fingerprint

    Disclosure
    Auditors
    Benchmarking
    Financial statements
    Auditing
    Prediction
    Guidance
    Black box
    Audit process
    Financial reporting
    Litigation risk
    Disaggregation
    Audit
    Uncertainty

    Keywords

    • Audit process
    • Client financial reporting
    • Disclosure benchmarking
    • EDGAR filings
    • Information acquisition

    ASJC Scopus subject areas

    • Accounting
    • Business, Management and Accounting(all)

    Cite this

    Auditor benchmarking of client disclosures. / Drake, Michael S.; Lamoreaux, Phillip; Quinn, Phillip J.; Thornock, Jacob R.

    In: Review of Accounting Studies, 01.01.2019.

    Research output: Contribution to journalArticle

    Drake, Michael S. ; Lamoreaux, Phillip ; Quinn, Phillip J. ; Thornock, Jacob R. / Auditor benchmarking of client disclosures. In: Review of Accounting Studies. 2019.
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