The Effect Of Industry Expertise For Audit Firms On Audit Fees

Firms’industry expertise refers to the specialized knowledge and professional skills that gradually accumulated by the auditor through their practice, or gotten by centrally professional investment on certain industries. In recent years, firms’ industry expertise gets more and more attention by the audit standard setters and regulators of China. Since2006, a series of files which aim at guiding the firms to develop their industry expertise were promulgated and implemented, such as the promulgation of the new auditing standards in China in2006and the opinion about promoting the audit firm to do bigger and stronger in2007, provide the basic policy guarantee for the development of firms’ industry expertise. Based on the specific system background of our country, this paper uses the annual report data of the2010-2012a-share listed companies in China as the research sample to test the relationship between firms’ industry expertise and audit pricing. It mainly includes the following six chapters:The first chapter is the introduction. It mainly discusses the research background, research significance, research ideas, research methods and the framework of this paper.The second chapter is literature review. This chapter makes a review from the domestic aspect and abroad aspect respectively, and makes a summarization from the following factors, which affect the firms’ audit pricing, the way to measure firms’ industry expertise and the relationship between firms’ industry expertise and audit pricing.The third chapter is theoretical basis. This paper analyzes and summarizes the relationship between firms’ industry expertise and audit fees from the aspects of industrial organization theory and porter’s competitive advantage theory. On this basis, from the following three aspects:scale economy, differentiation and learning from doing to analyze the way how the industry expertise influences audit fees.The fourth chapter is research design. This paper makes theoretical analysis, proposes hypothesis, selects variables, be explained variable and control variables. On this basis, it builds a linear regression model, to explain the source of the variable data and sample selection basis, prepares for subsequent empirical test in this paper.The fifth chapter is empirical testing. There are three main parts in this chapter, the whole sample inspection, the subsample inspection and the Robustness testing. By using descriptive statistics, correlation analysis and multiple regression analysis this paper analyzes the validation of hypotheses.The sixth chapter is research conclusions and countermeasures. First of all, it summarizes the empirical results, and then puts forward relevant countermeasures and suggestions from the system aspect and firm aspect about the orderly and healthy development of audit market and the development of the firms, finally expounds limitations and future research directions of this paper.Through empirical test, this paper finds that:(1) the firms with industry expertise get more audit fees than those without industry expertise.(2) the higher of the level of firms’ industry specialization, the more audit fees the firms get. In addition, the empirical results of this paper also confirm the following conclusions: the bigger of the companies’ size, the higher of the audit fees the firms get; the bigger of audit risk, the higher of the audit fees the firms get; the higher of the level of economic development in audit clients’ location, the higher of the audit fees the firms get.The contribution of this paper mainly includes the following two aspects:(1) based on the specific system background in our country, this paper reasonably sets standards to divide firms into firms with industry expertise and firms without industry expertise two categories, uses the virtual variable to study the relationship between the firms’ industry expertise and the audit fees. At the same time, this paper makes a further study on whether there is a difference in audit fees among the audit firms with various levels of industry expertise.(2) based on the2010-2012annual report data of a-share listed companies in our country, this paper empirically tests the relationship between the firm’s industry expertise and audit fees, providing newest data support for the previous research conclusion.