CROSS-COUNTRY EVIDENCE ON JOINT INDUSTRY SPECIALIZATION AND AUDIT QUALITY: A COMPARATIVE STUDY OF THE UK AND EU CAPITAL MARKETS POST-FINANCIAL CRISIS
Keywords:
Joint industry specialization, audit quality, discretionary accruals, modified audit opinion, UK, EU, big four auditors, post-crises regulationAbstract
This study investigates the impact of joint industry specialization by audit firms on audit quality across two major capital markets, the United Kingdom and selected European Union (EU) countries, during the post-financial crisis period from 2012 to 2020. we assess whether the synergistic expertise at both national and local office levels enhances audit quality more effectively than specialization at a single level. We approximate audit quality using three well-established measures available in a panel data set of listed firms: the value of the discretionary accruals, the error in accrual estimation, and audit opinion modification. The specification of our comparative analysis indicates that joint specialists have always been superior to non-specialist and one-level specialist specialists in either suppressing earnings manipulation or pursuing auditor conservatism. It is worth noting that although audit offices in the UK present a more harmonized system of national knowledge sharing, EU audit firms are more inconsistent due to differences in regulation and institutions. These results add credible cross-country data to the benefits of joint industry specialization in terms of the quality of audit and show the implications of joint industry specialization to regulators, investors, and strategy within audit firms in an ever-more harmonized financial market.
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