Audit Fee Premium: Does Audit Partner Expertise in Digitalization Pay Off?

• In Event: Break with Research and Education Poster Forum

Abstract

This study examines whether clients are willing to pay an audit fee premium for audit partner with expertise in client’s digitalization. Using panel data on large Finnish public and private companies for the five-year period (2012-2016), we construct client portfolios for all audit partners in the market for large audit clients. After controlling for the audit partner’s generic expertise, industry specialization, various audit partner and client characteristics, we document four interesting findings regarding the audit partner’s expertise in client’s digitalization. First, audit partners that have more experience in highly digitalized clients earn audit fee premium not only for highly digitalized clients but for all of their clients, suggesting that expertise gained from auditing highly digitalized clients is a generic skill rather than industry-specific one. Second, when industries are clustered together based on similarities in the forms of digitalization between industries, leading audit partners in these clusters earn a fee premium. Third, the magnitude of fee premium earned from the expertise in highly digitalized clients, however, increases with the level of digitalization of a given industry. Combined, our results suggest that the audit partner’s expertise in digitalization brings value to all clients, but particularly for highly digitalized clients.

Keywords: audit partner expertise, audit fees, digitalization, business automation.

Authors

• Arpine Maghakyan, Aalto University

• Lasse Niemi, Aalto University

• Henry Jarva, Aalto University

• Jukka Sihvonen, Aalto University