Does industry audit risk similarity affect auditor expertise? Evidence from China

Yu Liu, Julia Junxia Liu and Qingquan Xin

Asia-Pacific Journal of Accounting & Economics, 2024, vol. 31, issue 3, 339-359

Abstract: This study examines whether auditors develop expertise in audit risk homogenous industries. Using critical audit matters (CAMs) disclosed in audit reports of Chinese listed companies, we construct a homogeneity measure that captures the similarity of audit risks in a client industry. We find that individual partner expertise occurs in industries with high levels of CAM similarity. We also find that industry expert partners provide fee discounts in more homogenous industries, whereas audit quality is unchanged. These results suggest that auditors benefit from achieving economies of scale rather than providing quality-differentiated audits, by specializing in industries with similar audit risks.

Date: 2024
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DOI: 10.1080/16081625.2022.2147964

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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