Auditor Expertise in Mergers and Acquisitions

• In Event: Auditor Expertise

Abstract

We add to the literature on task-specific expertise by examining the role of auditor experience with mergers and acquisitions (M&A). We predict and find that clients engaging in acquisitions are more likely to switch to an M&A expert auditor. Further, we find that M&A expert auditors are associated with a lower likelihood of M&A related misstatements in the year of acquisition. Our results hold only in industries with high accounting complexity, suggesting that while auditors without M&A expertise are able to navigate complex M&A transactions in non-complex industries, clients benefit from auditor M&A expertise in complex industries. Finally, we observe that M&A experts charge higher fees, but during acquisition years they are able to pass savings that are likely due to improved cost efficiencies back to their clients. While the academic literature has mostly concentrated on the role of auditor industry expertise, our study suggests that auditors can develop other value-enhancing forms of expertise that transcend industries.

Authors

• Ronen Gal-Or, Northeastern University

• Rani Hoitash, Bentley University

• Udi Hoitash, Northeastern University