The effect of auditor industry specialization on audit quality on a firm-, office- and partner level in Germany

Abstract

In this study, I investigate the effect of auditor industry expertise on audit quality. Auditor industry expertise I measure on the firm-, the city- and the partner level. This is done by measuring those three units of analysis stand alone and concurrentlyin the same regression by using the joint national-city framework. Audit quality I proxy with discretionary accruals utilizing two different discretionary accrual models. Based on all firms listed on Xetra in the Prime Standard, I find evidence for industry expertise being especially accumulated on the firm and office level. The model with the highest number of significant results suggests that an auditor who is only an industry leader on the firm level but not on the city level results in decreased discretionary working capital accruals in the amount of 1.5% scaled by total assets. An auditor who is only a city level industry specialist results in decreased working capital accruals in the amount of 3.2% relative to total assets. I also find some evidence for the existence of a positive relation between partner level industry experience and audit quality.

Date of Award	27 Jun 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ilias Basioudis (Supervisor)