Audit Firm and Individual Auditor’s Measures of Auditor Industry Expertise and Effects on Accounting Restatements
Chen - Lung Chin,
National Chengchi University
Hsin - Yi Chi, National Taichung Institute of Technology
ABSTRACT. This paper examines whether the likelihood of SEC-initiated restatement is associated with industry auditor specialists. Prior research finds an association of auditor’s industry expertise at audit-firm level with earnings quality under an ”audit-firm legal regime”. This paper examines the association of an auditor’s expertise with accounting restatement under an “individual auditor legal regime”. We find that clients of the signing auditor specialists are less likely to have SEC-prompted restatements except for audit-firm industry specialization. We also find that lead auditor expertise dominates concurring and their fellow auditor expertise in explaining variation in restatement likelihood. Our conclusions remain unchanged after controlling for possible self-selection bias of the choice of auditor expertise. These results suggest that the effect of an audit-firm or signing auditor’s specialist on accounting restatement may depend on the auditor legal regime.
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