We appreciate the comments of Merle Erickson (the editor), an anonymous referee, Jere Francis, Carter Hill, Jagan Krishnan, Sam Tiras, Chris Wolfe, participants from the 2009 AAA Auditing Section Midyear Conference, and Thomson Reuters for the use of their I/B/E/S data.
National and Office-Specific Measures of Auditor Industry Expertise and Effects on Audit Quality
Article first published online: 16 NOV 2009
©, University of Chicago on behalf of the Accounting Research Center, 2009
Journal of Accounting Research
Volume 48, Issue 3, pages 647–686, June 2010
How to Cite
REICHELT, K. J. and WANG, D. (2010), National and Office-Specific Measures of Auditor Industry Expertise and Effects on Audit Quality. Journal of Accounting Research, 48: 647–686. doi: 10.1111/j.1475-679X.2009.00363.x
- Issue published online: 9 APR 2010
- Article first published online: 16 NOV 2009
- Received 18 August 2008; accepted 23 October 2009
Our paper examines whether audit quality is higher for industry audit specialists at the national and city-office levels using the framework developed in Ferguson et al.  and Francis et al. . We find that auditors who are both national and city-specific industry specialists have clients with the lowest abnormal accruals, suggesting that joint national and city-specific industry specialists have the highest audit quality. In addition, we find some evidence that abnormal accruals of firms audited by city-industry specialists alone (without also being national specific industry specialists) are lower than those audited by nonindustry specialists. Using alternative measures of audit quality, we find that when the auditor is both a national and a city-specific industry specialist, its clients are less likely to meet or beat analysts' earnings forecasts by one penny per share and more likely to be issued a going-concern audit opinion. Together these results provide consistent evidence that audit quality is higher when the auditor is both a national and city-specific industry specialist, suggesting that auditors' national positive network synergies and the individual auditors' deep industry knowledge at the office level are jointly important factors in delivering higher audit quality.