Audit Office Industry Diversity and Audit Quality

57 Pages Posted: 1 Nov 2014 Last revised: 20 Mar 2018

See all articles by Erik Beardsley

Erik Beardsley

University of Notre Dame - Mendoza College of Business

Nathan C. Goldman

North Carolina State University - Department of Accounting

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Date Written: March 15, 2018

Abstract

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

Beardsley, Erik and Goldman, Nathan C. and Omer, Thomas C., Audit Office Industry Diversity and Audit Quality (March 15, 2018). Available at SSRN: https://ssrn.com/abstract=2516981 or http://dx.doi.org/10.2139/ssrn.2516981

Erik Beardsley (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Nathan C. Goldman

North Carolina State University - Department of Accounting ( email )

Raleigh, NC 27695-8113
United States

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

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