Is the effect of industry expertise on audit pricing an office-level or a partner-level phenomenon?
Goodwin, John A and Wu, Donghui (2013) Is the effect of industry expertise on audit pricing an office-level or a partner-level phenomenon? (Accepted/In Press)
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Several studies report an audit fee premium for auditor industry expertise measured at the office level. We extend this line of research by examining whether there is a fee premium for auditor industry expertise measured at the partner level. Using Australian data, we show that the coefficient for partner-level industry expertise is highly significant and economically important. This is consistent with industry knowledge or expertise residing in the human capital of individual engagement partners. Inconsistent with prior research, we show that there is no auditor industry expertise fee premium at the audit office level when expertise at the partner-level is controlled for. Consistent with prior research, we find little evidence of a fee premium at the national level. In sum, our results show that the auditor industry expertise fee premium is mainly a partner-level phenomenon, casting doubt on the belief that industry knowledge or expertise is distributed across engagement partners within an audit office.
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