Auditor industry expertise in Italy: evidence from the Big 4 partners

Auditor industry expertise is investigated from three lines of research areas: 1) transfer of auditor expertise; 2) effects of mandatory audit firm rotations; 3) effects of the adoption of International Financial Reporting Standards and of strengthening of Internal Controls over Financial Reporting. Interviewing the Big 4 partners in Italy, we learn that the area-level of industry expertise, in contrast to common law countries, complements the national-level, allowing for the transfer of tacit and codified knowledge among offices where the mandatory audit firm rotation cycle reduces the useful life and quality of office-level industry expertise. We learn that recent regulatory actions have increased the demand for task expertise but not industry expertise. The results could have implications: for regulators of European Union countries in the implementation of the mandatory audit firm rotation rule; for managers of audit firms in the decision of localisation of offices and in their employees' organisation to improve audit quality.