A hidden risk of auditor industry specialization: evidence from the financial crisis

• 成果类型: Article
• 署名作者: Cassell, Cory; Hunt, Emily; Narayanamoorthy, Gans; Rowe, Stephen P.
• 署名单位: University of Arkansas System; University of Arkansas Fayetteville; Mississippi State University; Tulane University; University of Arkansas System; University of Arkansas Fayetteville
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-019-09508-w
• 发表日期: 2019
• 页码: 891-926
• 关键词: DIVERSIFICATION STRATEGY; LITIGATION RISK; earnings; QUALITY; Timeliness; performance; propensity; expertise; IMPACT; delay

摘要

We identify situations in which auditor industry specialization could be detrimental for audit outcomes. We predict that during periods of heightened industry-specific risk, specialist auditors from the affected industry could struggle to secure and allocate sufficient resources to mitigate the heightened risk because they have client portfolios concentrated in the affected industry. Using a measure of office-level industry concentration/specialization (as opposed to a market-based measure), we find that banking auditor industry specialization is associated with higher audit quality and more timely audits during the period before the financial crisis. However, during the financial crisis, banking industry specialization is associated with lower audit quality and less timely audits. Collectively, our results suggest that auditor industry specialization can be detrimental in certain circumstances and that audit firms and audit regulators should consider whether the audit markets have become too specialized to handle the resource allocation problems that crisis situations present.