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Industry Specialization and Audit Quality: Evidence from Audit Firm Switches in China*

Industry Specialization and Audit Quality: Evidence from Audit Firm Switches in China* Numerous studies have investigated the consequences of auditor switching. This study contributes to the existing literature by examining the impact of industry specialization on audit quality using audit firm switches in China. We find that changing from a non‐specialist to a specialist at the auditor partner level rather than the audit firm level decreases discretionary accruals and increases value relevance and the likelihood of modified audit opinions and going‐concern opinions. These results suggest that upward partner‐level industry specialization improves audit quality for clients, which attenuates the negative impact of an audit switch. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Journal of Financial Studies Wiley

Industry Specialization and Audit Quality: Evidence from Audit Firm Switches in China*

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Publisher
Wiley
Copyright
© 2022 Korean Securities Association
ISSN
2041-9945
eISSN
2041-6156
DOI
10.1111/ajfs.12365
Publisher site
See Article on Publisher Site

Abstract

Numerous studies have investigated the consequences of auditor switching. This study contributes to the existing literature by examining the impact of industry specialization on audit quality using audit firm switches in China. We find that changing from a non‐specialist to a specialist at the auditor partner level rather than the audit firm level decreases discretionary accruals and increases value relevance and the likelihood of modified audit opinions and going‐concern opinions. These results suggest that upward partner‐level industry specialization improves audit quality for clients, which attenuates the negative impact of an audit switch.

Journal

Asia-Pacific Journal of Financial Studies – Wiley

Published: Oct 1, 2022

Keywords: Audit quality; Audit firm switches; Firm level; Industry specialization changes; Partner level

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