Dr. Zhang publishes the first article about accounting comparability in Contemporary Accounting Research
Dr. Joseph Zhang, assistant professor of Accountancy, recently had his paper accepted for publication in the journal of Contemporary Accounting Research (CAR). The paper, entitled "Accounting Comparability, Audit Effort and Audit Outcomes," is the first article ever accepted for publication by CAR on this topic.
Accounting comparability is under-researched, in spite of its importance underscored by regulators, such as the FASB and PCAOB. Dr. Zhang's paper is the first work on how comparable information is useful for financial auditing. The study has practical implications for both auditors and client firms. He finds that comparability brings tangible benefits, i.e., timely and transparent financial reports and audit reports, lower audit fees, high audit quality, and low risk of audit failure.
In his paper, Dr. Zhang discusses accounting comparability among peer firms in the same industry. He finds that it reflects the similarity and the relatedness of firms' operating environments and accounting reporting. From the perspectives of "inherent audit risk" and "external information efficiency," comparability is helpful for auditors in assessing client audit risk and lowers the cost of information acquisition, processing, and testing. Dr. Zhang states that the availability of information about comparable clients helps improve audit efficiency and accuracy. Empirical results show that comparability is positively associated with audit opinion accuracy. Moreover, comparability is negatively related to audit effort (surrogated by audit fees and audit delay). These findings are robust to different specifications of regression models, particularly for the "endogeneity" issues due to the possible reverse causality that auditor style might influence client firms' comparability. In sum, the study shows that accounting comparability enhances the utility of accounting information for external audits.