Audit Quality and Specialist Tenure

• In Event: Auditing II

Abstract

Archival research offers contradictory findings on the effect of auditor industry specialization on audit quality. Although most studies report that, on average, auditors with greater industry market share (specialists) produce higher quality audits, recent work suggests that this might not be the case. We argue that the association between auditor industry specialization and audit quality depends on how long the auditor has been a specialist. Using a sample of Big 4 audit clients from 2003-2010, we find that auditors who have only recently gained the specialist designation are no different from non-specialist auditors in their ability to constrain clients’ discretionary accruals. Seasoned specialists, on the other hand, tend to produce audits of higher quality than either first-year specialists or non-specialist auditors. Our results hold even after matching firms on their propensity to engage a specialist auditor.

Authors

• Jennifer J Gaver, University of Georgia

• Steve Utke, University of Georgia