Research On The Influence Of Industry Specialization On Audit Quality

Audit quality has always been the focus of attention in the field of audit research. Besides being influenced by the independence of the accounting firm, audit quality is also affected by the professional competence of accounting firms, which can’t be ignored. whether accounting firm’s industry expertise, as one of the important factors affecting the professional competence, is helpful to improve the audit quality ? The question stays unsolved with current research results based on the lower market concentration in terms of the internal audit environment, which this paper starts to explore from.Based on the theories about principal agent, competitive strategy and reputation, selecting public firms as samples which were in A-share market in Shanghai and Shenzhen exchanges during the year 2012 to 2014, this paper explore the influences of accounting firm’s industry expertise on audit quality. In addition, based on the perspective of the customer scale, this paper figures out whether the impact of industry expertise on audit quality is subject to the size of the customers, by dividing the samples into two sub parts those large and small clients.The empirical results shows that the firm’s industry expertise can significantly improve the quality of audit, the reason is firm through the industry expertise to deepen the understanding of the industry characteristics, industry environment, industry accounting practice and so on, which will help to optimize the audit procedure and improve the quality of practice. Further research has found that accounting firms adopt different competitive strategies in customer groups in varies scales, which makes the market performance of the industry expertise different. In the large scale customer market, accounting firms bring value-added services to customers, by using differentiation caused by industry expertise that has a significant effect on the improvement of audit quality. In the small and medium scale customer market, in order to increase the share of the market, the accounting firms implement the cost leader strategy, by using the scale economy effect caused by industry expertise that has no significant influence on the audit quality.Based on the empirical results, this paper presents correlate suggestions, such asstrengthening the construction of industry expertise system, encouraging the firms to take the combined route to develop industry expertise. It is hoped that the research help promoting the certified public accountant industry implementing the strategy of becoming “bigger and stronger”.