Audit Office Industry Diversity and Audit Quality
57 Pages Posted: 1 Nov 2014 Last revised: 20 Mar 2018
Date Written: March 15, 2018
This study examines the association between the industry diversity of an audit office and audit quality, where industry diversity is the extent to which clients differ by industry classification. We suggest that industry diversity is an office-level characteristic that is distinguishable from other characteristics studied in prior research that might have an incremental effect on audit quality. We find a negative association between industry diversity and audit quality that is robust to controlling for other audit office and client characteristics. Additional analyses suggest that the association exists for both small and large audit offices as well as both industry specialists and non-industry specialists, but not in offices with subsets of clients clustered in the same industry as the client. This association is most apparent at the low end of the distribution of industry diversity, where audit offices with the least diverse client portfolios have the highest audit quality.
Keywords: Audit quality; knowledge management; industry expertise; professional service firm; restatements
JEL Classification: M00, M12, M20, M40, M41, M54
Suggested Citation: Suggested Citation