Auditors’ Use of In-house Specialists

University of Miami Legal Studies Research Paper No. 3695738

Journal of Accounting Research, Forthcoming

68 Pages Posted: 14 Oct 2020 Last revised: 8 Apr 2023

See all articles by Ally Zimmerman

Ally Zimmerman

Florida State University - Department of Accounting

Dereck Barr-Pulliam

University of Louisville

Joon-Suk Lee

Financial Industry Regulatory Authority (FINRA)

Miguel Minutti-Meza

University of Miami - Department of Accounting

Date Written: March 13, 2023

Abstract

Using PCAOB inspection data from 2006 to 2018, we examine the use of auditor-employed specialists in audit engagements. First, we find that the use of specialists is increasingly prevalent and related to clients’ size and complex accounting estimates. Second, the use of specialists is positively associated with the incidence of audit process deficiencies (identified by PCAOB inspections) but is not associated with output-based audit-quality proxies (restatements or absolute discretionary accruals). Hence, while process deficiencies are more likely to occur in engagements with higher use of specialists, financial reporting quality is not negatively impacted. Third, the use of specialists is positively associated with the likelihood of goodwill impairments and negatively associated with engagement profitability. Finally, cross-sectional tests suggest that board accounting expertise is a salient condition for more effective use of specialists. Collectively, our findings align with concerns noted by the PCAOB and prior experimental and survey studies. Although specialists assist auditors with the audit of complex estimates, engagements with comparatively high specialist use entail an incremental risk of audit process deficiencies.

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, Auditors’ Use of In-house Specialists (March 13, 2023). University of Miami Legal Studies Research Paper No. 3695738, Journal of Accounting Research, Forthcoming, 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

Financial Industry Regulatory Authority (FINRA) ( 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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