Accrual Intensity and the Choice of Auditor Industry Specialist

• In Event: Auditing

Abstract

This paper investigates whether the choice of industry auditor specialist is associated with accrual intensity. We define accrual intensity as the magnitude of accounting accruals scaled by total sales using both income and balance sheet approaches. we express the choice of industry specialist auditor as a function of accrual intensity. We find evidences that show that that high accrual intensity is positively and significantly associated with the choice of an industry-specialist auditor, measured both at the national level and at the city level. In other words, companies with high levels of accrual intensity are more likely to be audited by an industry-specialist auditor. This study suggests that firms whose financial statements contain large accruals strategically use higher quality audit services as a signal of accrual quality.

Authors

• Linxiao Liu, University of West Georgia

• Wael Aguir, University of Texas Rio Grande Valley-Edinburg

• Emeka T Nwaeze, University of Texas-San Antonio