The Value of Auditor Industry Specialists

• In Event: Auditor Expertise and Experience

Abstract

This paper uses demand estimation techniques to quantify the value of auditor industry specialists. In the first step, we derive the first order demand for auditor industry specialist at the office and national level. We also consider interdependencies between industry specialization at different levels and with audit office size. We find that clients experience a positive value of industry specialization. Further, we observe substitutive effects between industry specialization at the office and national level. In the second step, we use counterfactual analysis to elicit the total value that clients obtain from auditor industry specialists. We find that the total value is between 3.2 and 5.4 mio. US Dollars for industry specialization at the office and national level, respectively. This figure is much smaller than the brand value of Big 4 audit firms. However, it is larger than the value of being audited by a larger audit office. Further, it can be considered to be economically significant because about 5% of the clients of auditor industry specialists would switch to non-specialists if the value of industry specialists got lost.

Authors

• Qiang Guo, University of Southern Denmark

• Christopher Koch, Johannes Gutenberg University Mainz

• Aiyong Zhu, Wuhan University