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Auditor Industry Specialization and Discretionary Accruals: The Role of Client Strategy

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  • Yuan, Rongli
  • Cheng, Yingli
  • Ye, Kangtao

Abstract

This study examines the relation between client business strategy and the audit quality of industry specialists. Using a sample of Chinese listed firms for the period 2000 to 2010, this study finds that the negative association between industry specialists and client discretionary accruals is more pronounced when the client's business strategy deviates from the industry-normal strategies. Our results remain valid after controlling for self-selection bias and are robust to alternative measures of discretionary accruals, auditor industry specialization, and strategic deviance. Overall, our findings suggest that the effect of auditor industry specialization is not homogeneous across clients, and client characteristics (e.g., client strategy) moderate the relation between auditor industry expertise and audit quality. This study increases the understanding of the interaction between client business strategy and audit quality.

Suggested Citation

  • Yuan, Rongli & Cheng, Yingli & Ye, Kangtao, 2016. "Auditor Industry Specialization and Discretionary Accruals: The Role of Client Strategy," The International Journal of Accounting, Elsevier, vol. 51(2), pages 217-239.
    • Handle: RePEc:eee:accoun:v:51:y:2016:i:2:p:217-239
    DOI: 10.1016/j.intacc.2016.04.003
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    Cited by:

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    2. Mihai Carp & Costel Istrate, 2021. "Audit Quality under Influences of Audit Firm and Auditee Characteristics: Evidence from the Romanian Regulated Market," Sustainability, MDPI, vol. 13(12), pages 1-16, June.
    3. Lai, Kam-Wah, 2019. "Audit report lag, audit fees, and audit quality following an audit firm merger: Evidence from Hong Kong," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.
    4. Isaac Selasi Awuye, 2022. "The impact of audit quality on earnings management: Evidence from France," Post-Print hal-03824396, HAL.
    5. Gholamhossein Mahdavi & Abbas Ali Daryaei, 2017. "Attitude toward business environment of auditing, corporate governance and balance between auditing and marketing," Contaduría y Administración, Accounting and Management, vol. 62(3), pages 1019-1040, Julio-Sep.
    6. Gholamhossein Mahdavi & Abbas Ali Daryaei, 2016. "Attitude toward auditing, marketing and corporate governance (An examination based in Parsons’ social action theory)," International Journal of Corporate Social Responsibility, Springer, vol. 1(1), pages 1-16, December.

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