Audit Partner Specialization and Audit Fees: The Case of Andersen Followers

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  In Roundtable Session: Table 1: Determinants of Audit Fees

Abstract

This paper examines partner specialization effects on audit fees in the United States (U.S.) audit market. Prior research in the area of auditor specialization and audit fees has generally found that specialization demands a fee premium. The vast majority of this research measures auditor specialization at the national and/or office level of the firm, although several of these studies suggest that a more appropriate measure of specialization should be made at the partner level. However, such a measure is difficult to obtain for the U.S. market because U.S. audit partners are not required to sign the reports. This study fills this void by exploiting the unique environment created from the demise of Andersen to examine the effect of partner specialization on audit fees in the U.S. audit market. The OLS regression results from a sample of ex-Andersen clients that assumingly followed the Andersen partner to a new audit firm suggest that both partner and office level specialization demand fee premiums. These results should help academics, investors, and regulators in their evaluations of the U.S. audit pricing market.

Author

• Albert L. Nagy, John Carroll University