Audit Risk and the Implications of Employing Specialist Auditors: Evidence from Government Contractors

49 Pages Posted: 13 Sep 2022 Last revised: 21 Jan 2024

See all articles by Ahmet C. Kurt

Ahmet C. Kurt

Bentley University - Department of Accountancy

Date Written: August 25, 2022

Abstract

This paper examines audit risk and auditor specialization benefits in the context of government contractors, which are subject to complex rules and regulations. While government contractors face lower systematic risk, other significant risk considerations exist. Compared to non-contractors, government contractors are associated with greater idiosyncratic risk, notably higher reporting risk in areas related to revenues and expenses, which may not be well understood by non-expert auditors. Although government contractors are more likely to employ specialist auditors than non-contractors, only employing government contractor specialists, not traditional industry specialists, yields positive audit outcomes in high-risk areas (e.g., a lower likelihood of revenue- and expense-related restatements). Evidence also suggests that employing government contractor specialists provides some audit pricing benefits for government contractors. These findings highlight the potential positive implications of engaging auditors with task-relevant expertise in government contracting.

Keywords: government contractors, audit risk, auditor specialization, audit quality, audit fees

JEL Classification: M41, M42, M48

Suggested Citation

Kurt, Ahmet C., Audit Risk and the Implications of Employing Specialist Auditors: Evidence from Government Contractors (August 25, 2022). Available at SSRN: https://ssrn.com/abstract=4199751 or http://dx.doi.org/10.2139/ssrn.4199751

Ahmet C. Kurt (Contact Author)

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States

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