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Evaluating the effect of industry specialist duration on audit quality

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Abstract:

This study examines whether auditor industry specialist duration (i.e., the cumulative number of years an audit firm can be deemed an industry specialist) affects audit quality. Using a sample of 17,570 observations during the period 2006 to 2014, we find that audits performed by firms with longer industry specialist durations at the national level are associated with better audit quality, as proxied by the absolute value of discretionary accruals. This finding enhances the industry specialization literature by showing that, in the long run, specialist auditors constrain the accrual management activities of their clients. On the other hand, we also find that audits performed by firms with longer industry specialist durations at the city level are associated with greater levels of real earnings management. In turn, this result is consistent with real earnings management
surfacing as an unintended consequence of specialist auditors being able to better constrain the accrual management activities of their clients (Chi, Lisic, & Pevsner, 2011).
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0 (1),

Author's Keywords:

audit quality; auditor tenure; industry specialist; industry specialist duration
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Association:
Name: BALAS
URL:
http://http://www.balas.org/


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MLA Citation:

Lopez, Dennis. and Vega, Jay (Jose). "Evaluating the effect of industry specialist duration on audit quality" Paper presented at the annual meeting of the BALAS, University of San Diego, San Diego, USA, Mar 21, 2018 <Not Available>. 2018-10-15 <http://citation.allacademic.com/meta/p1346200_index.html>

APA Citation:

Lopez, D. M. and Vega, J. , 2018-03-21 "Evaluating the effect of industry specialist duration on audit quality" Paper presented at the annual meeting of the BALAS, University of San Diego, San Diego, USA Online <APPLICATION/PDF>. 2018-10-15 from http://citation.allacademic.com/meta/p1346200_index.html

Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
Abstract: This study examines whether auditor industry specialist duration (i.e., the cumulative number of years an audit firm can be deemed an industry specialist) affects audit quality. Using a sample of 17,570 observations during the period 2006 to 2014, we find that audits performed by firms with longer industry specialist durations at the national level are associated with better audit quality, as proxied by the absolute value of discretionary accruals. This finding enhances the industry specialization literature by showing that, in the long run, specialist auditors constrain the accrual management activities of their clients. On the other hand, we also find that audits performed by firms with longer industry specialist durations at the city level are associated with greater levels of real earnings management. In turn, this result is consistent with real earnings management
surfacing as an unintended consequence of specialist auditors being able to better constrain the accrual management activities of their clients (Chi, Lisic, & Pevsner, 2011).


 
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