Accruals Intensity and Auditor Choice

• In Event: Forecasting, Accruals, and Benford's Law

Abstract

This paper examines the choice of an industry specialist auditor by client firms. In particular, we investigate whether client firm’s accrual intensity is a factor associated with being audited by an industry specialist auditor. The hypothesis that accrual intensity is related to choice of an industry specialist auditor is new to the literature.

The results suggest that accrual intensity is negatively associated with the choice of an industry-specialist auditor. In other words, companies with high levels of accruals tend to be audited by auditors that are not industry specialists. This result is consistent with the audit risk hypothesis, that auditors perceive clients with high accrual intensity as more likely to pose a threat to their industry reputation.

Authors

• Wael Aguir, The University of Texas Rio Grande Valley

• Linxiao Liu, University of West Georgia

• Emeka T Nwaeze, University of Texas-San Antonio