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OULU BUSINESS SCHOOL

Anila Kiran Andrea Zambrano

Advanced Auditing TERM PAPER

Department of Accounting January 2013

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Table of contents
1. INTRODUCTION ....................................................................................................................... 3 LITERATURE REVIEW ............................................................................................................ 4

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RESEARCH QUESTION AND HYPOTHESIS ........................................................................ 8 DATA AND METHODOLOGY ................................................................................................ 9 SUMMARY AND CONCLUSION .......................................................................................... 12

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REFERENCES .................................................................................................................................. 13

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1. INTRODUCTION As it has been seen from previous literature; high audit fees are associated with high quality, however research has reported mixed results regarding whether or not audit specialization influences audit fees. In a meta-analysis performed by Hay D et. al (2006), it was found that only in three out of nine studies this variable was reported to be significant. On the other hand, the proxy to measure auditor specialization variable as such has received more attention in the past years. In general, it is measured by the percentage of a certain industry that is audited by the same auditing firm. However, researchers do not reach an agreement about whether it should also be also measured by, for example, at the national or local level, or if an specialist auditing firm has to be the one that is the largest in the market or close to be at least. Moreover, great attention has been paid to the demand attributes regarding audit fees but not equal attention has been paid to the supply side. Departing from the reasons and justifications explained in the above paragraph to perform this study, the aim is to research whether or not and at what extent audit specialization affects audit fees in an international context. Moreover, in this research audit fees are used as a proxy for audit quality which implies that the ultimate target is to investigate whether or not audit quality is affected by the auditor specialization. It is researched in an international context because the aim is also to investigate if there is a pattern related to audit specialization and by performing this type of study results could be generalized not only for some few countries but in an international context. This in turn would provide worth noticing practical implications for enterprises that are willing to use auditors not only at the local level but also in an international context for branches that are located in countries different from where the head quarter is. This study would also enhance, or at least help to understand, the interaction between supply and demand for auditors, because the supply side would have more information at hands regarding audit fees and consequently audit quality could be improved. Furthermore, the results from this study would also provide some relevant theoretical implications to the accounting literature, specifically to the auditing area, by filling the gap proposed by Hay D et. al (2006) regarding auditor specialization and audit fees. Following from this is literature review analyzing the previous results related to the topic. Section 3

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will discuss research question and hypothesis. This is followed by data and methodology and finally summary and conclusions are discussed.

2. LITERATURE REVIEW Audit literature has discussed two competing theories that explain how auditor specialization affects audit fee. On one hand auditor specialization can be seen as differentiating strategy adopted by firms that will result in higher fee if the client values the services. Since...
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