SUMMARY: In this study, we examine the roles of audit firms and individual auditors in improving financial statement comparability. We conduct the study in the Chinese setting, in which the identities of signing auditors are revealed in audit reports and accounting standards are principle based. After controlling for audit firm style, we find that firm pairs with shared signing auditors have incrementally greater comparability. Our results indicate that individual auditors exhibit their own personal style in implementing accounting standards and exercising professional judgment in the audit process. Overall, our study underscores the association between individual auditors and comparability, with practical implications for market participants and policymakers.

In this paper, we empirically examine whether financial statement comparability mitigates corporate fraud in China. Using the FSC measure proposed by De Franco, Kothari and Verdi (2011), we find that firms with greater comparability are less likely to commit frauds, either accounting – or non-accounting-related frauds. Further tests confirm that regulators can more quickly detect the fraudulent activities of accused firms if their financial statements are more comparable with those of their same-industry peers. Cross-sectional analyses show that the negative relationship between FSC and fraud incidence is more pronounced for firms with lower institutional ownership, and for those operating in regions with more developed markets. Overall, our study provides evidence for the benefits of peer comparisons in the fraud context, and has implications for investors, regulators, and standard setters.