An Empirical Study Between Industry Expertise And Audit Quality

Audit quality determines the survival and development of accounting firms, also has a significant impact on socio-economic order. The quality of the audit depends on two aspects, the accounting firm's independence and professional competence. Industry expertise, as an important component of professional competence, is also an important factor impact of audit quality. Industry expertise is accounting firm's a way of proprietary knowledge and expertise in one or several industries, accounting firms accumulated industry experience in the course of business, as well as through human, material, technical resources, and special training in the industry. Using this industry expertise, can make firms enhance competitive advantage, expand market share of industry in the increasingly fierce industry competition. Western countries have focused accounting firm's industry expertise capacity training for a long time. With the continuous improvement of capital markets and competition increasing, industry specialization has become a major business strategy firm. In academia, there are also a lot of research on the industry's theoretical and empirical, confirms the importance of industry expertise. In contrast, China's audit market relatively late, and the research of accounting firm industry expertise is not have a long history. Therefore, the study of accounting firm industry expertise as well as industry expertise on audit quality in China's capital market has a very important practical and theoretical significance.This paper reviews the research scholars at home and abroad, the research of relationship between industry expertise and audit quality start relatively early, with a different measure of audit quality as the alternative variable. Most research use the earnings management as an alternative index, and has made more consistent results, as industry expertise would reduce earnings management. But the study of using audit fees as an alternative indicator did not reach the same conclusion, which is a research focus of this article. In our country research expertise for the domestic industry started relatively late, up to now there is only a few more representative of the literature.Then this article conducted a theoretical analysis on the accounting firm industry expertise and the quality of audits. First of all introduce the conception of industry expertise, the development of industry expertise and the effect of industry expertise on audit quality. AS the independence of the auditor under certain conditions, construction industry expertise can improve accounting firms professional competence, improve the management of discovery and suppression of earnings management, enhance audit quality and reduce the risk of audit failure, it also can get a premium, and increase revenue. So this paper put forward two hypotheses: hypothesis 1, firms with industry expertise tolerate less earnings management than non-industry expertise accounting firms; hypothesis 2, firms with industry expertise charging higher audit fees than non-industry expertise of the accounting firm.To study the relationship of industry expertise on audit quality, the paper selected for handling accruals and audit fees as a proxy for audit quality, because the quality of audits can not be measured, and a variable can not be very good interpretation of the relationship between them. The paper used market share method, selected continuous variables and a dummy variable to measure the industry expertise. After control the size of enterprises, capital structure, financial risk, operating conditions and other factors,use 2007 and 2008 two years companies , study the relationship between industry expertise and manipulation of accruals and audit fees.Empirical analysis, this article used descriptive statistics, t tests and multiple linear regressions on industry expertise and audit quality, industry expertise and audit fees relationship separately. Descriptive statistics of the data showed that the current level of expertise of CPA Firms in the industry is still relatively low; accounting firms should pay attention to the cultivation of industry expertise. Regression results are basically consistent with the hypothesis of this article.The empirical results show that, first: accounting firm industry expertise and discretionary accruals profits is negative. The higher the level of industry expertise, the higher the auditor's professional ability, and found the probability of corporate default behavior, control the corporate management of earnings management, audit quality is higher too. Second: accounting firm industry expertise and audit fees were significantly positively correlated. That is, as industry expertise brought high audit quality that enhance the firm's competitiveness, increase its influence in the audit market, then allowing access to higher audit fees.Industry expertise can effectively inhibit the earnings management, increase audit fees, improve audit quality, therefore, our country should increase the training accounting firm industry expertise. First of all, improve the efficiency of the audit market, accelerate the construction of the market system, to stimulate and regulate the demand and provider sides for high audit quality. The Government should continue to encourage and support the merger between accounting firms to expanding the size of firm, While should also leading the audit industry for the healthy competition, so as to ensure the normal development of accounting firms. In addition, the accounting firm should increase investment in training industry expertise, in order to grown to the level of experts in the industry gradually.