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Is the effect of industry expertise on audit pricing an office-level or a partner-level phenomenon?

Author

Listed:
  • John Goodwin

    (Sabancı University)

  • Donghui Wu

    (The Chinese University of Hong Kong)

Abstract

Several studies report an audit fee premium for auditor industry expertise measured at the office level. We extend this line of research by examining whether there is a fee premium for auditor industry expertise measured at the partner level. Using Australian data, we show that the coefficient for partner-level industry expertise is highly significant and economically important. This is consistent with industry knowledge or expertise residing in the human capital of individual engagement partners. Inconsistent with prior research, we show that there is no auditor industry expertise fee premium at the audit office level when partner-level expertise is controlled for. Consistent with prior research, we find little evidence of a fee premium at the national level. The results suggest that the auditor industry expertise fee premium is mainly a partner-level phenomenon, casting doubt on the belief that industry knowledge or expertise is distributed across engagement partners within an audit office.

Suggested Citation

  • John Goodwin & Donghui Wu, 2014. "Is the effect of industry expertise on audit pricing an office-level or a partner-level phenomenon?," Review of Accounting Studies, Springer, vol. 19(4), pages 1532-1578, December.
    • Handle: RePEc:spr:reaccs:v:19:y:2014:i:4:d:10.1007_s11142-014-9285-8
    DOI: 10.1007/s11142-014-9285-8
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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