An Empirical Study Between Industry Expertise And Audit Quality

The risk-oriented audit in China come to the implementation stage after the release of new auditing standards in 2006. Risk-oriented audit stresses that the CPA's should establish the industry expertise to deal with complicated matters, and improve their quality of the audit. Auditors audit quality is the joint product of the professional competence, professional ethics, audit inputs and independence. In the case of other conditions established, the master of the production and operation characteristics of customer in the normal economic, the special accounting rules and audit Criteria, can enhance the CPA's professional judgement, the ability of effective assessment of the clients normal risk and special risk, thus contributing to improving the quality of audit services. So the industry expertise of accounting firm is an important factor which affects the audit quality.This paper analyzes the positive influence of auditing firms' industry expertise on their audit quality, then uses an empirical model to examine if the auditing firms possessing industry expertise result in high audit quality. The industries this paper researches are confined to six manufacturing industry in A-shares in 2006.After controlling variables which affect discretionary accruals such as company size, operating condition, financial risk, etc, the paper finds that clients of auditing firms which have relatively more industry expertise have lower discretionary accruals than clients of those having less industry expertise. These findings indicate that industry expertise does be able to facilitate audit quality. This paper is under the new audit guidelines which is the policy background, study relationship between the accounting firms' industry expertise and the quality of the audit.