Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

This is a public Custom Hive  public

research summary

    Firm versus Partner Measure of Auditor Industry Expertise...
    research summary posted October 10, 2013 by Jennifer M Mueller-Phillips, tagged 11.01 Supervision and Review – Effectiveness, 11.02 Engagement Quality Review – Processes and Effectiveness, 11.04 Industry Experience, 11.07 Attempts to Measure Audit Quality, 11.08 Proxies for Audit Quality 
    Firm versus Partner Measure of Auditor Industry Expertise and Effects on Auditor Quality
    Practical Implications:

    The findings of this study imply that firm level expertise impacts audit quality but has a greater impact in conjunction with office level or partner level expertise. Similarly, concurring auditors have a greater impact on audit quality when their abilities are paired with those of a lead or signing partner. This study implicitly emphasizes the importance in cooperation and the sharing of intellectual resources among partners in Big 4 firms considering that expertise is not homogeneous across a firm. Additionally, this study has implications on what could result if the Public Company Accounting Oversight Board in the United States decided to require an engagement partner’s signature on the audit report.

    For more information on this study, please contact Hsin-Yi Chi.


    Chi, H., and C. Chin. Firm versus partner measures of auditor industry expertise and effects on auditor quality.  Accounting: A Journal of Practice and Theory 30 (2): 201-229.

    individual partner industry expertise; discretionary accruals; modified audit opinion; audit quality.
    Purpose of the Study:

    This study explores the relationship between Big 4 audit quality and auditor expertise with respect to both the individual partners and the audit firm. The authors used accruals analysis as well as analysis of audit opinions to assess audit quality. To take the study a step further, an examination of the possible existence of differential audit quality between signing auditors whether lead or concurring partners was also performed. An office level perspective was used and deemed appropriate under the assumption that auditor expertise is permanently tied to individual professionals and their client knowledge which cannot be readily captured and distributed across the firm offices; additionally, the individual practice office is the decision-making unit of the firm when it comes to specific clients.

    To accomplish their purpose, first the authors studied whether audit industry expertise is driven by firm expertise, individual partner expertise, or a combination of both. They also studied whether the association between audit quality and industry expertise of the signing auditor specialist was more or less prominent for the lead auditor or the concurring auditor. One would expect that the lead partner generally would exhibit a more prominent association with audit quality than concurring audit specialists because it is the lead partner who is actively engaged with daily audit proceedings; this study aims to discover if that is truly the case. The study assesses the effectiveness of an individual partner-level and firm-level auditor specialists in enhancing audit quality as well as provides evidence regarding industry expertise homogeneity between individual partners within the same firm.  

    Design/Method/ Approach:

    The evidence for this study was collected from Taiwanese publicly listed companies audited by the Big 4 firms from 1983 to 2004. Financial data, audit opinions data, and auditor names were obtained from the Taiwan Economic Journal. Taiwan was the chosen location for this evidence because the audit report in Taiwan contains two signing auditor names as well as the firm name. 

    • Both firm-level industry expertise alone and partner- level industry expertise alone are associated with lower accruals. However, a combination of the two creates an effect above and beyond either level of expertise in isolation; therefore, differential discretionary accruals due to industry expertise are driven by a combination of firm and partner expertise.
    • Differential accruals due to industry expertise of signing are primarily driven by the lead auditor rather than the concurring auditor.
    • The differential likelihood of the issuance of a modified audit opinion is primarily attributable to signing auditor specialists and partner-level expertise.
    • Firm level specialists alone are not associated with a higher likelihood of issuing a modified audit opinion. Instead, firm level specialists along with signing auditor specialists create effects above and beyond those observed with auditor specialists alone.
    • Clients of lead signing auditor specialists have smaller accruals and are more likely to receive a modified audit opinion relative to those of non-specialists  whether the auditor specialists works alone or with a concurring auditor specialist.
    • Concurring auditor specialists alone are not associated with higher audit quality.
    • Industry expertise is not homogeneous across individual auditors within the same audit firm in Taiwan.
    Audit Quality & Quality Control
    Attempts to Measure Audit Quality, Engagement Quality Review – Processes & Effectiveness, Industry Experience, Proxies for Audit Quality, Supervision & Review – Effectiveness