Audit Industry Specialization, Audit Client’s Importance And Audit Fee

The specialization of the independent audit service has presented and developed in America audit market since 1970s. The ministry of finance has issued a series of policies to push firms to expand the scale since 1998. It indicates that audit industry specialization is more and more emphasized on. But whether audit industry specialization and audit independence are effective competitive strategy and whether they can bring audit premium need to be tested in empirical research. These studies will provide empirical evidences for firm’s strategic development.Firstly, the paper reviewed the related foreign and domestic literatures. It found that the relationship between firm specialization and audit premium has not reached an agreement now. There is a few of researches on the relationship between audit independence and audit premium. Then the paper reviewed the theoretical basis for industry specialization, client importance and audit fee, and it put forward the hypothesis. The paper selected 4831 Chinese listed companies as research sample to test hypothesis from 2010 to 2012. The empirical model is established based on the audit pricing model that Simunic (1980) proposed. The paper divided the whole sample into industry specialization sample and non industry specialization sample by 5%, and divided the whole sample into the important customers sample and unimportant customers sample in order to explore whether there are difference impact on audit fee in the different types of firms and where the audit premium comes from.This study found that:the auditor industry specialization and audit premium on the whole show a significant positive correlation, while the client importance and audit premium is negatively related. Specialized audit firms provided variation services to hold important clients, while unspecialized audit firms charge lower audit fee to win important clients. And the audit premium conies mainly from important clients, it indicate that important customers has the higher demand for auditor industry expertise than unimportant customers. The potential innovation of the article is that: (1) this paper discussed the relationship between the independence of firms and audit premium; (2) this paper took into account the effect of audit industry specialization client’s Importance on audit:(3) this paper found the audit premium comes from important customers mainly.