Reducing Restatements with Increased Industry Expertise

Contemporary Accounting Research, Vol. 26, No. 3, 2009

Posted: 10 Jul 2006 Last revised: 24 Sep 2009

See all articles by Chen-lung Chin

Chen-lung Chin

National Chengchi University (NCCU) - Department of Accounting

Hsin-Yi Chi

National Chung Hsing University - Department of Accounting

Date Written: June 3, 2009

Abstract

This paper examines whether the likelihood of accounting restatements is associated with the Big 4 industry auditor specialists, measured at both the partner–level and audit firm-level leadership. We focus on a sample of listed firms in Taiwan where audit reports must be audited and signed by the two signing auditors as well as by an audit firm. Extending previous studies (e.g., Francis, Reichelt, and Wang 2005, 2006), we classify industry specialists into three groups: (1) auditors that are industry specialists at both the individual partner-level (i.e. the lead signing auditors) and the firm-level; (2) auditors that are industry specialists at the individual partner-level, but not at the firm-level; and (3) auditors that are industry specialists at the firm-level, but not at the individual partner-level. The results reveal that clients of signing auditor specialists, either alone or in conjunction with firm-level specialists, are less likely to make accounting restatements relative to those of other auditors. We find no evidence that firm-level auditor specialists alone are associated with a smaller likelihood of accounting restatements. However, a firm-level industry expert does matter in the presence of the lead auditor being an expert. The results suggest that differential likelihood of accounting restatements due to the Big 4 industry expertise is primarily attributable to the signing partner specialists rather than to auditor specialists at the firm level. We also find that differential restatement likelihood due to signing auditors’ expertise is driven by the lead auditor’s expertise, rather than by the concurring auditor’s expertise.

Keywords: Partner industry specialist, Audit firm industry specialist, Accounting restatements

JEL Classification: M49, M41, M47, G38, K22

Suggested Citation

Chin, Chen-lung and Chi, Hsin-Yi, Reducing Restatements with Increased Industry Expertise (June 3, 2009). Contemporary Accounting Research, Vol. 26, No. 3, 2009. Available at SSRN: https://ssrn.com/abstract=913446

Chen-lung Chin

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan, Taipei
Taiwan

Hsin-Yi Chi (Contact Author)

National Chung Hsing University - Department of Accounting ( email )

No. 250, Kuo Kuang Rd. Taichung city, Taiwan
Taichung, Taiwan, 402
Taiwan
886-422859730 (Phone)
886-422196131 (Fax)

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