The Empirical Study Of The Relationship Between Auditor Industry Specialization And Audit Pricing

With the developing of the capital market in China, the audit intensity of competition in the market is growing. If the audit product is considered homogeneous product, and the replacement of the auditor’s costs are relatively low, then the auditors only through price competition to gain market share, but the excessive price competition to a certain extent affect the independence of the auditors reduce audit quality, to the detriment of the entire audit industry’s sustainable development. With the audit market competition and price wars competitively traditional drawbacks constantly exposed, making the auditors need to seek some effective methods for competition, in order to maintain strategic advantage. In addition, from the perspective of risk-based audit, auditors need not only for the industry in which the audited entity has a comprehensive grasp of the whole, and requires in-depth understanding of industry conditions on the business objectives of the audited entity and its significant impact on the financial statements. Only in this way, auditor can establish effective linkages between the external auditor and the audited entity operating environment, objectives, strategies, operational risk, risk of material misstatement.Auditors develop industry specialization ultimate goal is to win a higher market share, to obtain higher returns. This paper studies relationship between the auditor industry specialization and audit pricing, and test whether the auditor can obtain audit fees premium by developing industry specialization. The dissertation has4chapters:Chapter1is the preface, introducing the background, significance and prior literature.In Chapter2, the author constitutes the fundamental theory from demand and supply point of view. From the angel of demand of audit, clients demand industry specialized auditors for the value benefits provided by an industry-specialist auditor, including potentially lower fees, enhanced audit quality and disclosure. In addition, clients demand industry specialized auditors for as a signaling mechanism to investors that the client intend to provide enhanced disclosures. From the angel of supply of audit, the auditor develop industry specialization for meeting the demand from clients and obtaining advantage to compete with other auditors. There are three ways to measure the auditor industry specialization in previous studies. One is the industry market share method, the other one is portfolio share method, there is self-proclaimed method. At last in this chapter, the author analysis the audit pricing.In Chapter3, the author tests the relationship between the industry specialization and audit pricing. The author uses samples from2009to2011, in Chinese list company audit market. The results indicate (1) In whole samples, auditor industry specialization is positively correlated with audit fees;(2) In big client market.auditor industry specialization also positively correlated with audit fees;(3) But in small client market, auditor specialization has no significant effect on audit fees.In Chapter4, the author summarizes the main conclusions made in the dissertation and points out its limitations and directions of the later study.In this paper, the auditor tests the relationship between auditor industry specialization and the audit pricing by using the latest data. The results provide evidence that auditors can charge a premium by developing industry specialization. There for, auditors can develop industry specialization as a competitive strategy.