Term Paper

OULU BUSINESS SCHOOL

Anila Kiran Andrea Zambrano

Advanced Auditing TERM PAPER

Department of Accounting January 2013

2

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

2.

3.

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

4.

5.

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

3

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

References: Brian W Mayhew, & Michael S Wilkins. (2003). Audit firm industry specialization as a differentiation strategy: Evidence from fees charged to firms going public. Auditing, 22(2), 33-52. Carson, E., & Fargher, N. (2007). Note on audit fee premiums to client size and industry specialization. Accounting & Finance, 47(3), 423-446. Craswell, A. T., Francis, J. R., & Taylor, S. L. (1995). Auditor brand name reputations and industry specializations. Journal of Accounting and Economics, 20(3), 297-322. Ferguson, A., Francis, J. R., & Stokes, D. J. (2003). The effects of firm-wide and officelevel industry expertise on audit pricing. The Accounting Review, 78(2), 429-448. Fleming, D.M., and Romanus, R.N. 2007. Auditor industry specialization and audit fees surrounding section 404 implementation. Working paper, San Diego State University and Texas Tech University. Francis, J. R., Reichelt, K., & Wang, D. (2005). The pricing of national and city-specific reputations for industry expertise in the US audit market. The Accounting Review, 80(1), 113–136. Fung, S. Y. K., Gul, F. A., & Krishnan, J. (2012). City-level auditor industry specialization, economies of scale, and audit pricing. Accounting Review, 87(4), 1281-1307. Habib, A. (2011). Audit firm industry specialization and audit outcomes: Insights from academic literature. Research in Accounting Regulation, 23(2), 114-129. Hay, D. C., Knechel, W. R., & Wong, N. (2006). Audit fees: A meta-analysis of the effect of supply and demand attributes. Contemporary Accounting Research, 23(1), 141-191. Hua‐Wei Huang, Li‐Lin Liu, K. Raghunandan, and Dasaratha V. Rama (2007) Auditor Industry Specialization, Client Bargaining Power, and Audit Fees: Further Evidence. Auditing: A Journal of Practice & Theory: May 2007, Vol. 26, No. 1, pp. 147-158. 14 Jeffrey R Casterella, Jere R Francis, Barry L Lewis, & Paul L Walker. (2004). Auditor industry specialization, client bargaining power, and audit pricing. Auditing, 23(1), 7-140. Nikkinen J & Sahlström P (2004) Does Agency Theory Provide a General Framework for Audit Pricing? International Journal of Auditing, 8(3), 253-262. Rahmat, M. M., & Iskandar, T. M. (1993). Audit fee premiums from brand name, industry specialization and industry leadership: A study of the post big 6 merger in malaysia. Asian Review of Accounting, 12(2), 1-24. Wang, K., O, S., & Iqbal, Z. (2009). Audit pricing and auditor industry specialization in an emerging market: Evidence from china. Journal of International Accounting, Auditing & Taxation, 18(1), 60-72.