“MD&A Textual Similarity and Auditors” by Dr. Han (Heather) Li
Dr. Han (Heather) Li
Division of Accounting
College of Business (Nanyang Business School)
Nanyang Technological University
This study examines the relation between auditors and the unaudited Management Discussion and Analysis (MD&A). We show that unaudited MD&As are more textually similar when firms share the same auditor. This result suggests that auditors influence unaudited MD&As to be more textually similar. We further show that auditor-related MD&A similarity is negatively associated with MD&A modifications and forward-looking statements in the MD&A, suggesting that auditor-related MD&A similarity may decrease the MD&A’s disclosure quality. Although more audit influence is generally considered a positive financial reporting characteristic, our study cautions regulators and standard setters to consider potential negative consequences of mandating the audit of MD&As.