Effect of audit partner digitalization expertise on audit fees: Empirical evidence from the U.S. and Finland

40 Pages Posted: 8 May 2020 Last revised: 2 Jul 2021

See all articles by Arpine Maghakyan

Arpine Maghakyan

Aalto University - School of Business

Henry Jarva

Hanken School of Economics

Lasse Niemi

Aalto University - School of Business

Jukka Sihvonen

Aalto University

Date Written: April 13, 2020

Abstract

Digitalization has fundamentally changed how business models and information processes are organized. In response, audit firms have invested heavily in digitalizing auditing tools and hired IT experts to assist with new auditing technologies. This study hypothesizes and finds that audit partners specialized in highly digitalized clients charge higher fees than non-specialists. More specifically, after controlling for industry specialization and other characteristics, specialist audit partners earn about 5 percent premium in the U.S. audit market. For Europe (Finland), using a sample of mainly private companies we found an estimated fee premium of about 18 percent. Our results are robust to alternative measures of specialization in digitalization and model specifications and various estimation techniques addressing potential self-selection bias. The study contributes to archival research on auditor expertise and audit pricing by showing that expertise in digitalization is separate from industry-specific and generic knowledge accumulated from overall work experience.

Keywords: audit partner expertise, auditor specialization, audit fees, digitalization, auditor knowledge

JEL Classification: L84, M40, M42

Suggested Citation

Maghakyan, Arpine and Jarva, Henry and Niemi, Lasse and Sihvonen, Jukka, Effect of audit partner digitalization expertise on audit fees: Empirical evidence from the U.S. and Finland (April 13, 2020). Available at SSRN: https://ssrn.com/abstract=3575360 or http://dx.doi.org/10.2139/ssrn.3575360

Arpine Maghakyan

Aalto University - School of Business ( email )

Helsinki
Finland

Henry Jarva

Hanken School of Economics ( email )

PB 287
Helsinki, Vaasa 65101
Finland

Lasse Niemi (Contact Author)

Aalto University - School of Business ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Jukka Sihvonen

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

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