How does Big 4 auditor style impact the comparability of disaggregated performance statement components?

Scholars have demonstrated that pairs of companies audited by the same Big 4 auditor exhibit more comparable overall earnings than pairs audited by different Big 4 auditors. We advance this literature by providing the first evidence on whether, and to what extent, having the same Big 4 auditor enhances the comparability of disaggregated performance statement components. Relative to company-pairs with different Big 4 auditors, we find that company-pairs with the same Big 4 auditor exhibit greater comparability of gross profit, other operating income, and non-operating income, but not the income tax provision, suggesting that tax provision audits may involve unique factors that limit Big 4 auditors’ ability to standardize across engagements. We also find that company-pairs with the same Big 4 auditor exhibit greater comparability of other comprehensive income (OCI) and its components, within and beyond the financial services industry, and that comparability advantages for company-pairs with the same Big 4 auditor are greatest for components involving substantial complex and subjective estimation (i.e., OCI, non-operating income). Additional analyses demonstrate that comparability is further enhanced when company-pairs share the same Big 4 auditor who is an industry expert, and that company‐pairs with the same Big 4 auditor exhibit increased revenue comparability following adoption of ASC 606. Overall, this study advances our understanding of how Big 4 auditors impact the comparability of client performance statements, within and beyond the income statement. Additionally, this paper informs on how Big 4 auditors impact clients’ professional judgement in applying accounting standards and formulating accounting estimates.