Cross-Country Analysis of Auditor Specialization Premium: Effect of Legal, Extra-Legal and Political Environments

49 Pages Posted: 1 Feb 2009

See all articles by Bin Srinidhi

Bin Srinidhi

University of Texas at Arlington - Department of Accounting; City University of Hong Kong (CityUHK) - Department of Accountancy

Chee Yeow Lim

Singapore Management University - School of Accountancy

Mahmud Hossain

Nanyang Technological University (NTU) - Division of Accounting

Date Written: July 18, 2008

Abstract

Previous literature has provided mixed evidence of a premium in audit fee for industry-specialist auditors in US and other developed countries. In this cross-country study spanning twelve non-US countries, we provide evidence of such a premium in the international context, implying that specialist auditors provide a higher level of investor assurance than non-specialists. Further, we show that the average audit fee in countries with effective legal, extra-legal and political institutions is higher but the specialization premium is lower than in other countries. We interpret this finding as evidence that while effective institutions increase the demand for average level of audit assurance, they substitute rather than complement the incremental assurance provided by specialist auditors. This finding is reinforced by additional analysis that shows no significant specialization premium in the US, a country where institutions are most conducive to high financial statement assurance.

Keywords: Audit specialization, Legal protection, Extra-legal institutions, Political Economy

JEL Classification: G15, L11, M41, M49

Suggested Citation

Srinidhi, Bin and Lim, Chee Yeow and Hossain, Mahmud, Cross-Country Analysis of Auditor Specialization Premium: Effect of Legal, Extra-Legal and Political Environments (July 18, 2008). Available at SSRN: https://ssrn.com/abstract=1335051 or http://dx.doi.org/10.2139/ssrn.1335051

Bin Srinidhi (Contact Author)

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Chee Yeow Lim

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Mahmud Hossain

Nanyang Technological University (NTU) - Division of Accounting ( email )

Nanyang Business School
Singapore, 639798
SINGAPORE
+ 65 792 4217 (Fax)

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