The Effects of Firm-Wide and Office-Level Industry Expertise on Audit Pricing

Posted: 26 Mar 2003

See all articles by Andrew Ferguson

Andrew Ferguson

University of Technology, Sydney - Discipline of Accounting; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Jere R. Francis

Maastricht University

Donald J. Stokes

Monash University

Abstract

This study examines the role of auditor industry expertise in the pricing of Big 5 audits in Australia. We test if the audit market prices an auditor's firm-wide industry expertise, or alternatively if the audit market only prices office-level expertise in those specific cities where the auditor is the industry leader. We document that there is an average premium of 24 percent associated with industry expertise when the auditor is both the city-specific industry leader and one of the top two firms nationally in the industry. However, the top two firms nationally do not earn a premium in cities where they are not city leaders. We further document that national leadership rankings are in fact driven by the specific offices where accounting firms are city leaders. Thus the overall evidence supports that the market perception and pricing of industry expertise in Australia is primarily based on office-level industry leadership in city-specific audit markets.

Keywords: industry expertise, audit fees, big 5 accounting firms

JEL Classification: L84, M49

Suggested Citation

Ferguson, Andrew and Francis, Jere R. and Stokes, Donald, The Effects of Firm-Wide and Office-Level Industry Expertise on Audit Pricing. The Accounting Review, Vol. 78, No. 2, April 2003. Available at SSRN: https://ssrn.com/abstract=380640

Andrew Ferguson

University of Technology, Sydney - Discipline of Accounting ( email )

P.O. Box 123 Broadway
Sydney, NSW 2007
Australia
02 9514 3565 (Phone)
02 9514 3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Jere R. Francis (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Donald Stokes

Monash University ( email )

Department of Accounting and Finance
P O Box 197
Caulfield East, Victoria 3145
Australia

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