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This study examines audit fee premiums from brand name, industry specialization, and industry leadership after the merger of two Big 6 audit firms, creating the Big 5 in 1998 in the Malaysian audit market. A sample of 679 companies listed at the main and second boards of Kuala Lumpur Stock Exchange (KLSE) are investigated for audit fee premiums. Industry specialization is determined on the basis of 20 per cent share of audit market calculated by the number of audited companies in the industry. Audit fee premiums are calculated based on the Simunic (1980) model of audit fees. Results show: that Big 5 audit firms obtain 65.4 per cent audit market share for all KLSE listed companies; that Big 5 audit firms earn higher audit fees than non‐Big 5; and that industry specialization does not generate audit fee premiums. The study finds evidence for audit fee premiums derived from industry market leadership. Results also reflect the competitiveness among Big 5 audit firms in the audit market especially following the merger of Big 6 audit firms.

The purpose of this paper is to investigate the association between auditor industry specialization and audit fees surrounding Section 404 implementation.

With a sample of 1,006 industrial firms over the 2003-2005 reporting periods, an ordinary least square regression model was used to regress change in audit fees on auditor specialization measure and other control variables.

It was found that auditor industry specialization is negatively related to the change in audit fees during the first year of Sarbanes–Oxley Act (SOX) compliance (2003-2004). It was also found that there were no significant cost savings associated with auditor industry specialization in the second year of SOX compliance (2004-2005).

These results suggest that industry-specific expertise may enable auditors to adapt more efficiently to new significant audit standards and regulations, but that such efficiencies are likely to be most pronounced during the initial implementation year.

Auditor competition and auditor specialization are at the forefront of today’s ever-changing accounting industry. Analysis of a contemporary auditing issue (auditor specialization) in the context of major legislation (SOX) provides a research setting that gives both academics and practitioners valuable insight toward how future legislation can impact current accounting industry issues such as the increasing need to have more expertise.

This study aims to investigate the implications of audit industry specialization on auditor’s retention and growth within an emerging economy. Factors such as whether the firm is a Big 4, a firm with international affiliation, a local firm and the type of industry were studied to analyse the reasons behind audit firm retention and growth.

This research is based on a field study related to audit firms providing services to listed companies in an emerging economy. The sample includes the top 100 publicly held companies’ in the Egyptian stock market during 2006-2011 for which their annual reports are analysed to determine the audit firms’ retention and growth. An assessment of the continuity of the auditors and the increase in the number of audit clients were also measured.

The results confirm that industry specialization has an important effect on the auditor’s retention, especially for industries where capital investment is significant such as buildings, construction, financial services, housing and real estate. Big 4 audit firms retained their clients because of their industry specialization and brand name. Evidence was found that good knowledge of accounting and auditing standards resulted in audit firms with international affiliation competing with the Big 4 for clients’ retention and growth.

This study contributes to the existing literature, as it is among the first to provide empirical evidence on auditor retention, growth and auditor’s dominance in an emerging economy such as Egypt.

Auditing, accounting, finance, control.

Upper level undergraduate, MBA, MS accounting.

This case takes an internal approach by exploring how PricewaterhouseCoopers - Egypt develops and applies industry specialization in an emerging market such as Egypt. The case focuses on three aspects of specialization. First, the strategic drivers behind specialization. Second, the internal processes of building industry-specific knowledge. Finally, the costs and benefits of specialization.

Industry specialization is a strategy:

• Specialization is a strategy primarily used by Big 4 auditing firms, such as PwC-Egypt as a means of differentiating it self from the market.

Specialization is a strategy primarily used by Big 4 auditing firms, such as PwC-Egypt as a means of differentiating it self from the market.

Industry specialization is a culture:

• For specialization to be fully effective a learning culture should be in place in which firm personnel are committed to continually seek new in-depth knowledge about clients and their industries.

For specialization to be fully effective a learning culture should be in place in which firm personnel are committed to continually seek new in-depth knowledge about clients and their industries.

Human resources are the most valuable asset of auditing firms:

• Auditing is a service that involves extensive professional judgment. Thus, knowledge and expertise of its personnel is what differentiates one auditing firm's staff from another.

Auditing is a service that involves extensive professional judgment. Thus, knowledge and expertise of its personnel is what differentiates one auditing firm's staff from another.

Teaching notes.

The purpose of this paper is to consider the supply of audit firm industry specialisation in the market for statutory audits of publicly traded companies in Australia. The purpose of this study is to seek to gain a better understanding of the dynamics within the market for industry specialist audit services.

A structured interview process is used to investigate certain issues with the suppliers of industry specialist audit services (in this case all the then Big 5).

This paper found that industry specialisation involves the Big 5 audit firms developing a specialised knowledge of what clients do within any given industry and the issues and audit risks they face. The Big 5 have industry “focus” groups that are responsible for providing “leading edge” practices to their clients. According to many of the auditor interview respondents, the large number of Australian Stock Exchange (ASX) classifications has meant that audit firms have sought a more manageable means of partitioning their practices into different industry focus groups. The ASX classifications were described by some of those interviewed as being irrelevant. This raises questions regarding prior auditor industry specialisation research that has relied on these classifications.

The study does suffer from two limitations. First, the research only questioned the Big 5 firms, despite evidence that non‐Big 5 firms can create specialisations. Second, the study's data is relatively dated being collected in the late 1990s, so there is a possibility the findings may now be out of date, particularly given as indicated before, specialisation premiums are not generalisable across time.

The paper demonstrates the criticality of the relationship between audit market participants in developing an underlying framework that can universally explain the interactions that occur in the market for specialised audits.

This paper aims to examine the association between audit firm tenure and audit report lag (ARL) and the impact of auditor industry specialization on the association between audit firm tenure and ARL.

Using Habib and Bhuiyan’s (2011) method of measuring auditor industry specialization, the authors examine the sample of 7,291 firm-year observations from 2008 to 2010.

The authors find that auditor industry specialization (regardless of city-level, national-level and joint city- and national-level industry specialization) weakens the positive association between ARL and short audit firm tenure, suggesting that auditor industry specialization complements the negative effect of short audit firm tenure on ARL.

First, the authors add to the literature by answering the question of whether hiring industry auditor specialists is an effective way to shorten ARL created by short audit tenure. The authors provide some evidence that the concern of short audit tenure leading to longer ARL is reduced by hiring an industry-specialized auditor. Prior research mainly focuses on identifying the determinants of ARL without going further to find out which are the effective ways to reduce the audit delay. Second, their findings can somehow resolve the debate on whether audit firm rotation should be mandatory. A new auditor’s lack of knowledge of clients’ business operations during the early years of audit engagements results in longer ARL, which eventually influences the clients’ financial performance. The authors' result suggests the firms can reduce this adverse consequence by hiring an industry-specialized auditor. Finally, their findings may provide helpful information to firms in selecting external auditors, public accounting firms in selecting a differentiation strategy and regulators in mandating audit firm rotation.

The purpose of this paper is to examine the impact of institutional holdings and corporate debts on audit quality, proxied by auditor industry specialization.

The tests use regression analysis for a sample of 396 company-years from 2003 to 2008 and control for factors known to affect auditor industry specialization.

The results show a positive association between institutional ownership and auditor industry specialization. These results are consistent across most measures of auditor industry specialization and different thresholds of audit firm market share. In addition, a positive link is reported between corporate debt and industry specialization by auditors. This result, however, holds under the composite proxy in terms of total assets only.

The major limitation is the unavailability of data on audit fees and sales (revenues) to measure auditor market share.

Institutional investors and debtholders have preference for auditors who can enhance the credibility of financial reporting and improve the quality of financial information and the results document that the choice of specialist auditors can potentially influence this objective.

The paper provides information to academics, regulators, companies, and auditors concerning the impact of institutional investors and creditors on the choice of industry specialists. Also, it shows the importance of industry specialization on audit quality.

The purpose of this paper is to examine the relation between a company's bid‐ask spread, a proxy for information asymmetry, and auditor tenure and specialization.

The tests use clustered regression for a sample of 31,689 company‐years from 1992 to 2001 and control for factors known to impact bid‐ask spread in cross‐section.

The findings suggest that the market's perception of disclosure quality is higher and private information search opportunities are fewer for companies engaging industry specialist auditors. In addition, the paper finds that information asymmetry has a U‐shaped relation to auditor tenure. This U‐shaped relation holds for both specialists and non‐specialists; however, the bid‐ask spread for specialists tends to fall below that of non‐specialists at all tenure intervals.

The findings may directly result from auditor tenure and specialization or it may be that those auditor‐related characteristics are a subset of concurrent choices made by the company that impacts disclosure quality.

Companies have incentives to lower information asymmetry and the findings document that the choice of a specialist auditor and the length of the auditor relationship can potentially influence this objective.

The paper provides information to academics, regulators, companies, and auditors concerning the effect of auditor‐client relationships on the level of information asymmetry. In addition, it shows the importance of industry specialization and audit firm tenure on audit quality.

This paper uses institutional theory to analyze the structure of the sustainability assurance market (SAM) at a global level. The purpose of this paper is to determine if regional differences affect industry specialization in this market.

Using a sample of 3,657 sustainability reports (SRs) with assurance statements, the authors study the global and regional specialization of assurers by breaking down the sample into three main regions. The authors approach industry specialization using previous methodologies applied to the financial audit market, and explain differences statistically significant among regions.

The authors find different industry specialists depending on the geographical region in which the audit firm is located. The Europe, Middle Eastern and Africa region has the highest number of industry specialists and the Asia-Pacific region the lowest. Notwithstanding the global participation of Big 4 firms, assurance specialization depends on the country where the company is located.

The paper reveals the need to include regional differences in the analysis of the SAM at the international level.

The study shows an in-depth study of the SAM that may be useful for assurers, to decide strategic actions in industries and countries and for regulators, to control the risk of monopolistic/oligopolistic markets.

The study presents a novel approach to the analysis of the assurance market for SRs, by studying it from the supply point of view. The analysis provides a measure of specialization that may help understand the structure of the SAM.