What Are the Determinants and Consequences of Auditor’s Use of In-House Specialists?

67 Pages Posted: 14 Oct 2020

See all articles by Ally Zimmerman

Ally Zimmerman

Florida State University - Department of Accounting

Dereck Barr-Pulliam

University of Louisville

Joon-Suk Lee

Unaffiliated Authors

Miguel Minutti-Meza

University of Miami - Department of Accounting

Date Written: July 2020

Abstract

Using proprietary Public Company Accounting Oversight Board data, we examine the determinants and consequences of auditors’ use of in-house specialists (i.e., employed by the auditor). The use of in-house specialists among the six largest global network U.S. audit firms reached an average of about 90% of inspected audits in 2017-2018. First, we document that client size, complexity of accounting estimates, fair value measurements, and the audit team’s experience are associated with the use of specialists. Second, involving specialists is associated with higher team hours and fees but lower engagement profitability, suggesting that specialists are costly. Third, there is a debate on the use of specialists and audit quality. Specialists bring unique expertise in complex areas, but academics and regulators argue that auditors may not always supervise specialist work properly. Our results support the latter argument; quality problems are more prevalent when there is comparatively more specialist involvement. However, increased coordination with specialists, as well as the audit team’s experience, mitigate audit quality problems.

Keywords: specialists, audits, PCAOB, audit quality, audit costs, experts

JEL Classification: M41, M42

Suggested Citation

Zimmerman, Aleksandra and Barr-Pulliam, Dereck and Lee, Joon-Suk and Minutti-Meza, Miguel, What Are the Determinants and Consequences of Auditor’s Use of In-House Specialists? (July 2020). Available at SSRN: https://ssrn.com/abstract=3695738 or http://dx.doi.org/10.2139/ssrn.3695738

Aleksandra Zimmerman (Contact Author)

Florida State University - Department of Accounting ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States

Dereck Barr-Pulliam

University of Louisville ( email )

110 West Brandeis Avenue
Louisville, KY 40208
United States
502-852-4834 (Phone)

HOME PAGE: http://https://business.louisville.edu/faculty-research/faculty-directory/14229/

Joon-Suk Lee

Unaffiliated Authors ( email )

United States

Miguel Minutti-Meza

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States
305-284-6287 (Phone)

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