Auditor Industry Specialization and Audit Fees Surrounding Section 404 Implementation

Purpose – The purpose of this paper is to investigate the association between auditor industry specialization and audit fees surrounding Section 404 implementation. Design/methodology/approach – With a sample of 1,006 industrial firms over the 2003-2005 reporting periods, an ordinary least square regression model was used to regress change in audit fees on auditor specialization measure and other control variables. Findings – It was found that auditor industry specialization is negatively related to the change in audit fees during the first year of Sarbanes–Oxley Act (SOX) compliance (2003-2004). It was also found that there were no significant cost savings associated with auditor industry specialization in the second year of SOX compliance (2004-2005). Practical implications – These results suggest that industry-specific expertise may enable auditors to adapt more efficiently to new significant audit standards and regulations, but that such efficiencies are likely to be most pronounced during the initial implementation year. Originality/value – Auditor competition and auditor specialization are at the forefront of today’s ever-changing accounting industry. Analysis of a contemporary auditing issue (auditor specialization) in the context of major legislation (SOX) provides a research setting that gives both academics and practitioners valuable insight toward how future legislation can impact current accounting industry issues such as the increasing need to have more expertise.

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The effect of auditor characteristics on tax avoidance of Iranian companies

Journal of Asian Business and Economic Studies ◽

10.1108/jabes-11-2018-0100 ◽

2020 ◽

Vol 27 (2) ◽

pp. 119-134 ◽

Cited By ~ 1

Author(s):

Mahdi Salehi ◽

Hossein Tarighi ◽

Tahereh Alidoust Shahri

Keyword(s):

Stock Exchange ◽

Emerging Market ◽

Tax Avoidance ◽

Audit Fees ◽

Industry Specialization ◽

Content Type ◽

Auditor Industry Specialization ◽

Auditor Tenure ◽

The Relationship ◽

Auditor Characteristics

Purpose The purpose of this paper is to investigate the relationship between auditor characteristics and the level of tax avoidance in an emerging market. Design/methodology/approach In this regard, the effect of various factors such as auditor tenure, auditor industry specialization, audit reports and audit fees on tax avoidance was examined. The study sample includes listed companies in the Tehran Stock Exchange. The time period of study is six years from 2011 to 2016. Also in this study, firm size, leverage, firm age and auditor size were controlled. Findings The results of this research were determined in four hypotheses. First and second hypotheses that explore the relationship between auditor tenure and auditor industry specialization with tax avoidance were not confirmed. But the results showed a significant relationship between the type of audit opinions and audit fees with tax avoidance. Originality/value The current study investigates the auditor characteristics on tax avoidance in a developing nation of Iran and the results may helpful the developing countries.

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City-Level Auditor Industry Specialization, Economies of Scale, and Audit Pricing

The Accounting Review ◽

10.2308/accr-10275 ◽

2012 ◽

Vol 87 (4) ◽

pp. 1281-1307 ◽

Cited By ~ 104

Author(s):

Simon Yu Kit Fung ◽

Ferdinand A. Gul ◽

Jagan Krishnan

Keyword(s):

Bargaining Power ◽

Economies Of Scale ◽

Scale Economies ◽

Audit Fees ◽

The United States ◽

Data Availability ◽

Audit Pricing ◽

Industry Specialization ◽

Auditor Industry Specialization ◽

Negative Effect

ABSTRACT We examine the effects of city-level auditor industry specialization and scale economies on audit pricing in the United States. Using a sample of Big N clients for the 2000–2007 period, and a scale measure based on percentile rankings of the number of audit clients at the city-industry level, we document significant specialization premiums and scale discounts in both the pre- and post-Sarbanes-Oxley Act (SOX) periods. However, the effects of industry specialization and scale economies on audit pricing are highly interactive. The negative effect of city-industry scale on audit fees obtains only for clients of specialist auditors. By contrast, clients of non-specialist auditors obtain scale discounts only when they enjoy strong bargaining power, suggesting that auditors are “forced” to pass on scale economies to clients with greater bargaining power. Data Availability: Data are available from sources identified in the article.

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Auditor Industry Specialization and Market Segmentation: Evidence from Hong Kong

Auditing A Journal of Practice & Theory ◽

10.2308/aud.2000.19.1.49 ◽

2000 ◽

Vol 19 (1) ◽

pp. 49-66 ◽

Cited By ~ 234

Author(s):

Mark L. DeFond ◽

Jere R. Francis ◽

T. J. Wong

Keyword(s):

Hong Kong ◽

Market Segmentation ◽

Audit Fees ◽

Market Segment ◽

Brand Name ◽

Accounting Firms ◽

Industry Specialization ◽

Auditor Industry Specialization ◽

Production Economies ◽

Market Leader

Audit fees of Big 6 and non-Big 6 accounting firms are examined for 348 publicly listed Hong Kong companies. Using more recent data than prior studies, we find evidence of Big 6 premiums for both general brand name and for industry specialization. In addition, we find that the large local firm Kwan Wong Tan & Fong, which is the market leader in the property sector, has significantly lower fees than both Big 6 and other non-Big 6 auditors in that industry. Specialization thus leads to different results for Big 6 and non-Big 6 firms and suggests a market segment not previously identified: non-Big 6 specialization, which leads to production economies and the capture of market share through lower fees for a clientele seeking low-priced audits. These results also suggest that prior studies do not recognize sufficiently that Big 6 brand-name reputation is a necessary foundation on which to achieve higher priced quality-differentiated audits based on industry specialization.

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Auditor Industry Specialization, Client Bargaining Power, and Audit Fees: Further Evidence

Auditing A Journal of Practice & Theory ◽

10.2308/aud.2007.26.1.147 ◽

2007 ◽

Vol 26 (1) ◽

pp. 147-158 ◽

Cited By ~ 69

Author(s):

Hua-Wei Huang ◽

Li-Lin Liu ◽

K. Raghunandan ◽

Dasaratha V. Rama

Keyword(s):

Survey Data ◽

Bargaining Power ◽

Audit Fees ◽

Negative Association ◽

Industry Specialization ◽

Audit Market ◽

Auditor Industry Specialization ◽

Audit Fee ◽

The U.S

Casterella, Francis, Lewis, and Walker (CFLW 2004) find, using survey data from 1993, that (1) there is a Big 6 industry specialization audit fee premium in the small client segment of the U.S. audit market, but (2) audit fees decrease for large companies as the client becomes increasingly large relative to an auditor's clientele. In this study, we first replicate and confirm the results of CFLW (2004), using audit fee data from SEC filings for fiscal 2000 and 2001. In the post-SOX period, we find that the results related to specialization continue to hold in fiscal 2004 but not in 2003—suggesting that 2003 is perhaps a unique year due to the flux in the audit market following the enactment of SOX. With respect to client bargaining power, our results in the post-SOX period differ from CFLW (2004) in that we observe a negative association between client bargaining power and audit fees for both the small and large client segments.

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Auditor Industry Specialization, Service Bundling, and Partner Effects in a Mining-Dominated City

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-50728 ◽

2014 ◽

Vol 33 (3) ◽

pp. 153-180 ◽

Cited By ~ 11

Author(s):

Andrew Ferguson ◽

Gabriel Pündrich ◽

Adrian Raftery

Keyword(s):

Audit Fees ◽

Development Stage ◽

Industry Specialization ◽

Strategic Pricing ◽

Mining Town ◽

Auditor Industry Specialization ◽

Big 4 ◽

Sensitivity Tests ◽

Industry Leadership ◽

The Impact

SUMMARY: This study examines auditor industry specialization effects in Perth, a remote mining town in Australia characterized by a large number of small, homogeneous firms. We consider the impact of leadership by the non-Big 4 auditor BDO Kendalls (BDO) for a sample of 371 mining development stage entities (MDSEs). After controlling for factors known to determine audit fees, we find no evidence of auditor industry leadership fee premiums accruing to BDO, a result robust to a range of sensitivity tests including the broadening of tests Australia-wide. However, when the dependent variable is redefined to the total “bundle” of services provided by the audit firm (including audit and non-audit fees), the industry leader is shown to earn a fee premium suggesting BDO uses audits as a conduit to supply higher-margin non-audit services. Our findings suggest that strategic pricing by industry leaders may not be confined to Big 4 firms.

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The Value of Auditor Industry Specialization: Evidence from a Structural Model

The Accounting Review ◽

10.2308/tar-2020-0525 ◽

2021 ◽

Author(s):

Qiang Guo ◽

Christopher Koch ◽

Aiyong Zhu

Keyword(s):

Discrete Choice ◽

Structural Model ◽

Choice Model ◽

Discrete Choice Model ◽

Audit Fees ◽

Industry Specialization ◽

Audit Firm ◽

Auditor Choice ◽

Auditor Industry Specialization ◽

Office Level

This study investigates the value of auditor industry specialization. In the first step, we use a discrete choice model to derive the first-order demand for auditor industry specialization. Our results reveal that clients have a general preference for auditor industry specialization, relating to both audit firm and audit office specialization. Further, we observe that specializations at the audit firm and audit office level are substitutes. We also find that larger and more complex clients have a stronger demand for industry specialization at the audit office level. In the second step, we use the results from the discrete choice model to quantify the value of auditor industry specialist for clients. We find that the overall value of industry specialization aggregated across all clients is 5.2 million USD (0.36% of audit fees) and that industry specialization at the firm (office) level is decisive for auditor choice in 4% (6%) of all cases.

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