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Auditor industry range and audit quality

Author

Listed:
  • Dekeyser, Simon
  • He, Xianjie
  • Xiao, Tusheng
  • Zuo, Luo

Abstract

We develop the concept of auditor industry range as the extent to which an auditor has experiences in auditing clients from different industries, and we link this construct to auditor performance, drawing on prior research in psychology and cognitive science. We find that auditors with a wide range of industry experiences are more likely to require audit adjustments than auditors with a narrow range. We conduct an extensive set of analyses to mitigate the concern that our results are driven by endogenous matching between auditors and clients. The positive relation between auditor industry range and audit adjustments exists regardless of whether the industries covered by an auditor's portfolio exhibit strong or weak economic co-movement, and the relation is stronger for more complex clients, in more uncertain environments, and for auditors with more years of audit experience. Overall, our findings suggest that an auditor's diverse experiences in different industries can enhance audit quality.

Suggested Citation

  • Dekeyser, Simon & He, Xianjie & Xiao, Tusheng & Zuo, Luo, 2024. "Auditor industry range and audit quality," Journal of Accounting and Economics, Elsevier, vol. 77(2).
    • Handle: RePEc:eee:jaecon:v:77:y:2024:i:2:s0165410123000939
    DOI: 10.1016/j.jacceco.2023.101669
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    More about this item

    Keywords

    Industry range; Audit quality; Audit adjustment; Experience; Cognitive entrenchment;
    All these keywords.

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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