Is the Effect of Industry Expertise on Audit Pricing an Office-Level or a Partner-Level Phenomenon?

50 Pages Posted: 29 Apr 2013 Last revised: 29 Mar 2014

See all articles by John Goodwin

John Goodwin

Sabanci University

Donghui Wu

The Chinese University of Hong Kong; Center for Institutions and Governance

Date Written: November 12, 2013

Abstract

Several studies report an audit fee premium for auditor industry expertise measured at the office level. We extend this line of research by examining whether there is a fee premium for auditor industry expertise measured at the partner level. Using Australian data, we show that the coefficient for partner-level industry expertise is highly significant and economically important. This is consistent with industry knowledge or expertise residing in the human capital of individual engagement partners. Inconsistent with prior research, we show that there is no auditor industry expertise fee premium at the audit office level when expertise at the partner level is controlled for. Consistent with prior research, we find little evidence of a fee premium at the national level. In sum, our results show that the auditor industry expertise fee premium is mainly a partner-level phenomenon, casting doubt on the belief that industry knowledge or expertise is distributed across engagement partners within an audit office.

Keywords: Audit fee premium, Industry expertise, Engagement partner, Audit office

JEL Classification: M41, M42

Suggested Citation

Goodwin, John and Wu, Donghui, Is the Effect of Industry Expertise on Audit Pricing an Office-Level or a Partner-Level Phenomenon? (November 12, 2013). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2257692 or http://dx.doi.org/10.2139/ssrn.2257692

John Goodwin (Contact Author)

Sabanci University ( email )

Orta Mahalle √úniversite Caddesi 27
Istanbul, Orhanli, 34956 Tuzla 34956
Turkey
90 0216 4839675 (Phone)

Donghui Wu

The Chinese University of Hong Kong ( email )

Sha Tin
N.T.
Hong Kong
852-3943 7836 (Phone)
852-2603 5114 (Fax)

HOME PAGE: http://www.bschool.cuhk.edu.hk/staff/wu-donghui/

Center for Institutions and Governance ( email )

Room 1033, 10/F
Cheng Yu Tung Building, No. 12 Chak Cheung Street
Hong Kong
China

HOME PAGE: http://www.bschool.cuhk.edu.hk/centres/centre-for-institutions-and-governance/

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