%AC_AFE = The percentage of AC members who are accounting financial experts: i.e., if their biography indicates that they have at least one of the following qualifications: certified public accountant, chief financial officer, auditor, chief accounting officer, controller, treasurer, or vice president-finance.
%AC_INE = The percentage of AC members who are industry experts: i.e., if they are currently working (or have previously worked) in another firm that has the same two-digit ICB code as the company in which they now serve as an AC member.
%AC_SFE = The percentage of AC members who are supervisory financial experts: i.e., if their biography indicates that they are a chief executive officer, chief operating officer, chair of the board, or a president of a company but not an accounting financial expert.
%ADD_NEW = The number of new KAMs that auditors disclose in current year’s EARs, after removing those included in prior year’s AC report, scaled by the current year’s total KAMs.
%ADDED = The number of new KAMs that auditors disclose in the current year’s EARs, scaled by the current year’s total KAMs.
%BORROW = The number of new KAMs in the current year’s EAR that are the same as those disclosed in that entity’s prior year’s AC report, scaled by the current year’s total KAMs.
%REMOVE = The number of removed KAMs from the prior year’s EARs, scaled by the prior year’s total KAMs.
%REPEAT = The number of KAMs included in both the prior year’s and current year’s EARs, scaled by the current year’s total KAMs.
%UNMATCHED_KAM = The percentage of KAMs disclosed in the EAR that are not included in that entity’s EACR in year t.
%UNMATCHED_KAMdif = The percentage of SIFs disclosed in the EACR that are not included in that entity’s EAR in year t, treating revenue recognition and fraud in revenue recognition differently.
%UNMATCHED_SIF = The percentage of SIFs disclosed in the EACR that are not included in that entity’s EAR in year t.
%UNMATCHED_SIFdif = The percentage of SIFs disclosed in the EACR that are not included in that entity’s EAR in year t, treating revenue recognition and fraud in revenue recognition differently.
REC = The change in accounts receivables from year t-1 to year t, scaled by total assets at year t.
SALES = The sales for year t minus sales for year t-1, scaled by total assets at year t-1.
ABAFEE = The residual of the audit fee model: LNAFEE = β0 + β1SIZE+ β2MTB + β3CFO + β4IRISK + β6SALESVOL + β7LOSS + β8LEVERAGE + β9BUSY+ β10ROA+ β11BIG4+ Σβ𝑗industry+ Σβ𝑘year+ .
ABSACC = The absolute value of abnormal accruals at the end of year t, using the Kothari’s performance-matched modified Jones model.
AC_SIZE = The number of members of the AC in year t.
ADD_NEW = The number of new KAMs that auditors disclose in this year’s EARs, after removing those that are consistent with the prior year’s unmatched SIFs.
AFEE = The natural log of total audit fees.
ANALYST_COV = The number of analysts following the company at the end of year t.
AUDITOR_EXP = The percentage of aggregate number of auditors’ clients within the industry in year t.
BaseSIMEAR = The mean similarity score of a firm’s EAR disclosure to all of the other firms’ disclosures, audited by the same audit firm in year t, using the VSM.
BaseSIMEAR_IDF = The mean similarity score of a firm’s EAR disclosure to all of the other firms’ disclosures, audited by the same audit firm in year t, using the VSM with TF-IDF weighting function.
BaseSIMEAR_Tri = The mean similarity score of a firm’s EAR disclosure to all of the other firms’ disclosures, audited by the same audit firm in year t, using the Trigram method.
BaseSIMKAM = The mean similarity score of a firm’s KAM disclosure to all of the other firms’ disclosures, audited by the same audit firm in year t, using the VSM.
BaseSIMKAM_IDF = The mean similarity score of a firm’s KAM disclosure to all of the other firms’ disclosures, audited by the same audit firm in year t, using the VSM with TF-IDF weighting function.
BaseSIMKAM_Tri = The mean similarity score of a firm’s KAM disclosure to all of the other firms’ disclosures, audited by the same audit firm in year t, using the Trigram method.
BDINDEP = The percentage of independent non-executive board members in year t.
BDSIZE = The number of board members in year t.
BIG4 = 1 if the auditor is from Big 4, otherwise 0.
BUSY = 1 if the company’s fiscal year end is during the month of December, otherwise 0.
CATA = The ratio of current assets to total assets at the end of year t.
CFO = The cash flow from operations divided by total assets at the end
of year t.
DACC+ = The income-increasing abnormal accruals at the end of year t.
DROP_UNMATCHED = The number of unmatched KAMs removed from prior year’s EARs.
EARNVOL = The standard deviation of the operating earnings over the prior five years.
FIRM_CHG = 1 if the company changed audit firms in year t+1, otherwise 0.
FIRST = 1 if this is the first year for the audit firm to prepare the EAR for that particular entity, otherwise 0.
HIGH_ABAFEE = 1 if the abnormal audit fee is above the highest tertile (i.e., top third), otherwise 0.
Ind_SIMEAR = The mean cosine similarity score of a firm’s EAR to all of the other firms’ EARs, audited by the same audit firm in the same industry and in year t.
Ind_SIMKAM = The mean cosine similarity score of a firm’s KAM disclosure to all of the other firms’ disclosures, audited by the same audit firm in the same industry and in year t.
INV = Inventory scaled by total assets in year t.
IRISK = Inventory plus accounts receivables scaled by total assets in year t.
LEVERAGE = The ratio of debt to total assets at the end of year t.
LIST_US = 1 if the company is cross-listed in the US in year t, otherwise 0.
LNSUB = The natural log of the number of geographic segments.
LONDON = 1 if the EAR is signed by a partner located in the London office, otherwise 0.
LOSS = 1 if the company reports a negative net income, otherwise 0.
LOW_ABAFEE = 1 if the abnormal audit fee is below the lowest tertile (i.e., bottom third), otherwise 0.
MA = 1 if a company appears in the SDC Platinum M&A database as
an acquirer in year t, otherwise 0.
MTB = The market value of equity divided by the book value of equity
at the end of year t.
numAC_AFE = The number of AC members who are accounting financial experts, as defined above.
numAC_INE = The number of AC members who are supervisory financial experts, as defined above.
numAC_SFE = The number of AC members who are industry experts, as defined above.
PICK = 1 if at least one new KAM in the year t’s EAR is the same as the SIF disclosed in that entity’s year t-1’s EACR, otherwise 0.
POST = 1 if the fiscal year is the first three years following the EAR requirements, otherwise 0.
PPE = The property, plant, and equipment at t, scaled by total assets at
PRIOR_ACC = The current accruals in year t-1, measured as net income before extraordinary items plus depreciation and amortization less operating cash flows, scaled by total assets at end of year t-1.
PROCOST = The research and development expense divided by total asset at the beginning of year t (missing data are replaced by zero).
REC = Accounts receivables scaled by total assets in year t.
ROA = The net income before extraordinary items divided by total
assets at the end of year t.
SALESVOL = The standard deviation of annual sales over the prior three years.
SEO = 1 if a company has a common equity offering in the secondary
market according to the SDC Global New Issues database in year t, otherwise 0.
SIM_EARDIF = The difference between industry-based similarity scores and
BaseSIMEAR, with the similarity scores computed using the VSM.
SIM_EARDIF_IDF = The difference between industry-based similarity scores and
BaseSIMEAR, with the similarity scores computed using the VSM with TF-IDF weighting function.
SIM_EARDIF_Tri = The difference between industry-based similarity scores and
BaseSIMEAR, with the similarity scores computed using the Trigram method.
SIM_EARRES = The regression residual of industry-based similarity scores and
BaseSIMEAR, with the similarity scores computed using the VSM.
SIM_EARRES_IDF = The regression residual of industry-based similarity scores and
BaseSIMEAR, with the similarity scores computed using the VSM with TF-IDF weighting function.
SIM_EARRES_Tri = The regression residual of industry-based similarity scores and
BaseSIMEAR, with the similarity scores computed using the Trigram method.
SIM_KAMDIF = The difference between industry-based scores and
BaseSIMKAM, with the similarity scores computed using the VSM.
SIM_KAMDIF_IDF = The difference between industry-based scores and
BaseSIMKAM, with the similarity scores computed using the VSM with TF-IDF weighting function.
SIM_KAMDIF_Tri = The difference between industry-based scores and
BaseSIMKAM, with the similarity scores computed using the Trigram method.
SIM_KAMRES = The regression residual of industry-based scores and
BaseSIMKAM, with the similarity scores computed using the VSM.
SIM_KAMRES_IDF = The regression residual of industry-based scores and
BaseSIMKAM, with the similarity scores computed using the VSM with TF-IDF weighting function.
SIM_KAMRES_Tri = The regression residual of industry-based scores and
BaseSIMKAM, with the similarity scores computed using the Trigram method.
SIMEAR = The similarity score of a firm’s current year’s EAR disclosure to that of its prior year’s disclosures, using the VSM.
SIMEAR_IDF = The similarity score of a firm’s current year’s EAR disclosure to that of its prior year’s disclosures, using the VSM with TF- IDF weighting function.
SIMKAM = The similarity score of a firm’s current year’s KAM disclosure to that of its prior year’s disclosures, using the VSM;
SIMKAM_IDF = The similarity score of a firm’s current year’s KAM disclosure to that of its prior year’s disclosures, using the VSM with TF- IDF weighting function.
SIZE = The natural log of total assets (in £,000) at the end of year t.
TA = Total assets at the end of year t.
TOTAL_ACC = The change in non-cash current assets minus the change in current liabilities excluding the current portion of long-term debt, minus depreciation and amortization, scaled by total assets at t-1.
TOTAL_KAM = The total number of KAMs disclosed in the EAR in year t.
UNMATCHED_KAM = The number of KAMs disclosed in the EAR that are not included in that entity’s EACR in year t.
UNMATCHED_SIF = The number of SIFs disclosed in the EAR that are not included in that entity’s EAR in year t.