Auditor Regional Industry Specialization: Effect on Audit Pricing and Audit Quality

Abstract

This paper examines the pricing and audit quality of Big 4 industry experts at the regional level. Prior research has found that national and office level industry specialization is positively associated with audit fees and higher audit quality, but regional industry specialization has not yet been examined. Big 4 audit firms geographically organize within unique regions by focusing on hiring, industry-specific training, quality assurance, and advising offices within the region. Within these regions are specific industries which are more dominant than in other regions, which increase the likelihood of regional industry specialization. I find that regional industry specialists, particularly at the joint city-regional level, charge significant audit fee premiums and their clients have lower abnormal accruals. This study contributes to the industry specialization literature by documenting an additional level of industry expertise.