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The Impact of Office-Level vs. Firm-Level Auditors' Industry Expertise on Conservatism
Keith Jones, George Mason University
Gopal V. Krishnan, George Mason University
Kevin D. Melendrez, Louisiana State University
ABSTRACT. The objective of this study is to examine whether earnings conservatism, a fundamental property of financial reporting is driven by auditors’ industry expertise measured at the firm (national)-level or the local office-level. Our findings indicate that it is the office-level industry expertise that drives conservatism. Further, we find that this relation is even stronger for clients who pay high unexpected fees to the auditors, suggesting that fee dependence does not compromise auditor independence for auditors who are city-specific industry leaders.
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