Empirical Research On The Relationship Of Auditor Industry Specialization And Audit Fees

Since the1990s, big6have completed industry service lines reorganization and focused on the development of industry expertise while local accounting firms also have come to understand the significant role of auditor industry specialization after three merger waves. However, whether the development of auditor industry specialization could be able to meet customers’ demand for differentiated audit product and to obtain audit fee premiums should be depended on empirical test. The empirical research on the relationship of auditor industry specialization and audit fees in this paper would enrich the conclusions of auditor industry specialization. It is hoped that the study will be benefit for local accounting firms in China to international and specialized path.Firstly, this paper reviewed the relevant research results at home and abroad and found that there have not yet been formed a consensus in audit areas about the relationship of auditor industry specialization and audit fees. The results showed that auditor industry specialization and audit fees have no relationship, positive correlation or negative correlation. The inconsistent conclusions are directly related to the study with auditor industry specialization means of measurement, scope of study and the type of industry. In addition, to use agency theory, information theory, insurance theory as the theoretical basis for empirical analysis, selecting the2008-2010Shanghai and Shenzhen A-share listed companies in China with all4629samples, using two auditor industry specialization means of measurement and the use of virtual variable form is that the customer revenue calculated on the basis of the arithmetic square root of the auditor in a specific industry, industry-specific market share(IMS)10%or more and the industry portfolio shares(IPS) ranked the top three and refer to Neal and Riley (2004) who proposed weighted market share method(WMS) that with customer revenue calculated on the basis of the arithmetic square root of the weighted specific auditor market share(WMS); Empirical model used Simunic(1980) who proposed the audit pricing model, using Excel2003software for data sorting and filtering, the output data using statistical software SPSS17.0to research on the relationship of auditor industry specialization and audit fees. The empirical results turns out that auditor industry specialization and audit fees shows an obviously positive correlation and the regression equation does not exist autocorrelation and multicollinearity problems, that is, auditor industry specialization is benefit to get audit fee premiums. As a result, it is suggested in this article that local accounting firms should have a clear market positioning, brand building and the formation of oligopolies audit market structure to develop auditor industry specialization; Relevant government departments should strengthen the supervision of auditor industry specialization and to prevent the formation of a single source revenue of auditor industry specialization which could affect auditor’s independence.In this paper, innovation lies in the use of customer revenue calculated on the basis of the arithmetic square root of the specific auditor industry market share(IMS)10%or more and the industry portfolio shares(IPS) at the top three ranked is defined as auditor with industry expertise.