The Consequences of Auditor Industry Concentration During Industry-Specific Crisis

• In Event: Continental Breakfast & Research and Education Forum
  In Paper Session: Table 8: Audit Quality

Abstract

We investigate the implications of auditor industry concentration for resource allocation and quality across audit firm portfolios. Using the financial crisis as the setting of our study, we find that nonbank clients of bank-concentrated auditors experience a significant delay in receiving an opinion and had lower financial reporting quality during the crisis. The findings are consistent with bank-concentrated auditors responding to increased risk associated with bank clients during the financial crisis by reallocating resources away from other clients. Our results are robust to alternative bank concentration measures as well as various controls for auditor and client characteristics. The findings contribute to the streams of literature on auditor specialization and audit workload compression and complement prior literature on auditor risk response during the financial crisis.

Authors

• Emily Hunt, University of Arkansas-Fayetteville

• Ganapathi S Narayanamoorthy, Tulane University

• Stephen Rowe, University of Arkansas