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
Date Written: April 13, 2020
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: Suggested Citation