Changes in Partner Industry Expertise and Audit Quality

• In Event: Break and Research & Education Poster Forum

Abstract

This paper contributes to the industry expertise and audit quality literature by empirically examining whether the changing of expertise industries by audit partners negatively affects audit quality. Our empirical analyses of a small sample of U.S. data find that partners who change industry of expertise as compared to non-industry-change partners are associated with higher abnormal accruals, an indication of higher client earnings management and lower audit quality. In addition, we find that industry-change partners as compared to non-industry-change partners are also associated with higher audit fees, an indication of more audit effort from a steeper learning curve. In sum, partners who change industries of expertise provide lower quality audits for higher fees. This study is the first we are aware of that uses publicly available data to examine changes in U.S. audit partner industry expertise and audit quality.

Authors

• Albert L. Nagy, John Carroll University

• Benjamin Hoffman, Kent State University

• Aleksandra B Zimmerman, Northern Illinois University