Auditor expertise in government contracting

This study examines audit quality and pricing implications of auditor expertise in government contracting. Government contractors face unique financial reporting issues, including complex regulations and high-risk areas such as revenue recognition and expense allocation, which may not be well understood by non-expert auditors. The findings suggest that national government contract specialists provide higher audit quality for government contractors, as evidenced by fewer revenue- and expense-related restatements and non-timely filings. Investors also assign greater value to the earnings of contractors audited by these specialists. In contrast, engaging traditional industry specialists does not yield benefits for government contractors. Regarding audit pricing, evidence indicates that national government contract specialists tend to offer fee discounts during the early years of the engagement, followed by a fee premium in later years. This research highlights the economic importance of auditors’ task-specific expertise in navigating the complex reporting challenges of government contracting.