Auditor Industry Specialization and Evidence of Cost Efficiencies in Homogenous Industries

Posted: 7 Sep 2013 Last revised: 9 Sep 2015

See all articles by Kenneth L. Bills

Kenneth L. Bills

University of Arkansas

Debra C. Jeter

Vanderbilt University - Accounting

Sarah E. Stein

Virginia Tech

Date Written: December 3, 2014


This study examines the audit pricing effects when auditors specialize in industries conducive to transferable audit processes. Our results indicate that specialists charge incrementally lower audit fees in industries with homogenous operations and in industries with both homogenous operations and complex accounting practices. Moreover, we discover that audit quality is no lower for clients audited by these specialists offering fee discounts, consistent with our conclusion that the reduction in fees indicates cost efficiencies rather than lower quality audits. Our results are somewhat surprising given they suggest auditors pass along cost savings to the client in certain settings. However, further analysis indicates that the shared economies of scale only occur in a subsample of client firms with relatively high bargaining power. When considered in conjunction with prior research using a survivorship approach, our results indicate that certain industries lend themselves to specialization because auditors generate cost-based competitive advantages without compromising service quality.

Keywords: auditor industry specialization, audit fees, economies of scale, homogenous industries, complex industries

Suggested Citation

Bills, Kenneth L. and Jeter, Debra C. and Stein, Sarah E., Auditor Industry Specialization and Evidence of Cost Efficiencies in Homogenous Industries (December 3, 2014). The Accounting Review 90 (5): 1721-1754; Vanderbilt Owen Graduate School of Management Research Paper No. 2321741. Available at SSRN: or

Kenneth L. Bills

University of Arkansas ( email )

Fayetteville, AR 72701
United States

Debra C. Jeter (Contact Author)

Vanderbilt University - Accounting ( email )

Nashville, TN 37203
United States

Sarah E. Stein

Virginia Tech ( email )

Blacksburg, VA 24061
United States

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