Partner industry specialization and audit pricing in the United Kingdom

Khairul Ayuni Mohd Kharuddin, Ilias G Basioudis, David Hay

Research output: Contribution to journalArticle

Abstract

This study investigates the effects of audit partner industry specialization on audit pricing in the UK market. The mandatory disclosure of the name of the engagement partner in the auditor reports of UK public listed companies took effect from April 2008. Given that the identity of the audit partner is now observable to users of financial statements, it can be argued that there may be an incentive for partner-level differentiation in auditing products, and hence, audit quality. This research examines whether auditor industry expertise in the UK is driven by firm, office, or partner level expertise. The fee premium observed in the study is a joint product of firm and partner level of industry expertise with the highest premium occurring when the client is also audited by an industry leading partner. This finding lends support to the argument that industry expertise is uniquely attributable to the individual audit partner’s human capital in terms of their knowledge and experience from leading audit engagements in a particular industry. It also provides evidence that some fee premiums earned by audit firms and documented in prior literature are most probably the product of the individual audit partner’s expertise.
LanguageEnglish
Pages57-70
Number of pages14
JournalJournal of International Accounting, Auditing and Taxation
Volume35
Early online date18 May 2019
DOIs
Publication statusPublished - 1 Jun 2019

Fingerprint

Audit pricing
Audit
Industry
Industry specialization
Expertise
Premium
Fees
Auditors
Financial statements
Auditing
Audit quality
Audit firms
Listed companies
Incentives
Joint products
Human capital
Mandatory disclosure

Bibliographical note

© 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

  • Audit fee premium
  • Audit partner
  • Audit pricing
  • Industry specialization
  • United Kingdom

Cite this

@article{8ddea97232304ba6b9aa4d55ecfc15df,
title = "Partner industry specialization and audit pricing in the United Kingdom",
abstract = "This study investigates the effects of audit partner industry specialization on audit pricing in the UK market. The mandatory disclosure of the name of the engagement partner in the auditor reports of UK public listed companies took effect from April 2008. Given that the identity of the audit partner is now observable to users of financial statements, it can be argued that there may be an incentive for partner-level differentiation in auditing products, and hence, audit quality. This research examines whether auditor industry expertise in the UK is driven by firm, office, or partner level expertise. The fee premium observed in the study is a joint product of firm and partner level of industry expertise with the highest premium occurring when the client is also audited by an industry leading partner. This finding lends support to the argument that industry expertise is uniquely attributable to the individual audit partner’s human capital in terms of their knowledge and experience from leading audit engagements in a particular industry. It also provides evidence that some fee premiums earned by audit firms and documented in prior literature are most probably the product of the individual audit partner’s expertise.",
keywords = "Audit fee premium, Audit partner, Audit pricing, Industry specialization, United Kingdom",
author = "{Mohd Kharuddin}, {Khairul Ayuni} and Basioudis, {Ilias G} and David Hay",
note = "{\circledC} 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/",
year = "2019",
month = "6",
day = "1",
doi = "10.1016/j.intaccaudtax.2019.05.005",
language = "English",
volume = "35",
pages = "57--70",
journal = "Journal of International Accounting, Auditing and Taxation",
issn = "1061-9518",
publisher = "Elsevier",

}

Partner industry specialization and audit pricing in the United Kingdom. / Mohd Kharuddin, Khairul Ayuni; Basioudis, Ilias G; Hay, David.

In: Journal of International Accounting, Auditing and Taxation, Vol. 35, 01.06.2019, p. 57-70.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Partner industry specialization and audit pricing in the United Kingdom

AU - Mohd Kharuddin, Khairul Ayuni

AU - Basioudis, Ilias G

AU - Hay, David

N1 - © 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

PY - 2019/6/1

Y1 - 2019/6/1

N2 - This study investigates the effects of audit partner industry specialization on audit pricing in the UK market. The mandatory disclosure of the name of the engagement partner in the auditor reports of UK public listed companies took effect from April 2008. Given that the identity of the audit partner is now observable to users of financial statements, it can be argued that there may be an incentive for partner-level differentiation in auditing products, and hence, audit quality. This research examines whether auditor industry expertise in the UK is driven by firm, office, or partner level expertise. The fee premium observed in the study is a joint product of firm and partner level of industry expertise with the highest premium occurring when the client is also audited by an industry leading partner. This finding lends support to the argument that industry expertise is uniquely attributable to the individual audit partner’s human capital in terms of their knowledge and experience from leading audit engagements in a particular industry. It also provides evidence that some fee premiums earned by audit firms and documented in prior literature are most probably the product of the individual audit partner’s expertise.

AB - This study investigates the effects of audit partner industry specialization on audit pricing in the UK market. The mandatory disclosure of the name of the engagement partner in the auditor reports of UK public listed companies took effect from April 2008. Given that the identity of the audit partner is now observable to users of financial statements, it can be argued that there may be an incentive for partner-level differentiation in auditing products, and hence, audit quality. This research examines whether auditor industry expertise in the UK is driven by firm, office, or partner level expertise. The fee premium observed in the study is a joint product of firm and partner level of industry expertise with the highest premium occurring when the client is also audited by an industry leading partner. This finding lends support to the argument that industry expertise is uniquely attributable to the individual audit partner’s human capital in terms of their knowledge and experience from leading audit engagements in a particular industry. It also provides evidence that some fee premiums earned by audit firms and documented in prior literature are most probably the product of the individual audit partner’s expertise.

KW - Audit fee premium

KW - Audit partner

KW - Audit pricing

KW - Industry specialization

KW - United Kingdom

UR - https://www.sciencedirect.com/science/article/pii/S1061951818300910?dgcid=raven_sd_search_email

UR - http://www.scopus.com/inward/record.url?scp=85066027224&partnerID=8YFLogxK

U2 - 10.1016/j.intaccaudtax.2019.05.005

DO - 10.1016/j.intaccaudtax.2019.05.005

M3 - Article

VL - 35

SP - 57

EP - 70

JO - Journal of International Accounting, Auditing and Taxation

T2 - Journal of International Accounting, Auditing and Taxation

JF - Journal of International Accounting, Auditing and Taxation

SN - 1061-9518

ER -