The Relationship between Auditor Industry Specialization and Audit Fees: An Analysis of Partner-Level Specialization in the Context of Fraud

• In Event: Continental Breakfast & Research and Education Forum
  In Paper Session: Table 13: Fraud & Skepticism

Abstract

This study examines the relationship between auditor specialization and audit fees on a matched sample of clients who have/have not detected and reported misappropriation of assets type fraud during the period 2002-2010. The use of Australian-based data gathered by KPMG as part of their bi-annual fraud survey provides a unique opportunity to gain otherwise unobtainable insights into this type of fraud. Using an Australian setting also allows this research to investigate the relationship between auditor specialization and audit fees by measuring auditor specialization at the audit partner level. The information required for this type of analysis is not publicly available in many other jurisdictions. We find that companies with greater losses from misappropriation of assets pay higher audit fees than those companies with smaller losses from misappropriation of assets. Although we do not find support for the audit partner with the highest market share in a particular industry and location charging higher audit fees, we do find support for the audit partner with the second highest market share charging higher audit fees. These findings are discussed with respect to the potential offsetting impacts of specialist premiums and long-run economies of scale.

Authors

• Shannon Sidaway, rmit university

• Ilias G Basioudis, University of Aston

• Brendan O'Connell, RMIT University