دانلود رایگان مقاله انگلیسی تنوع محدود، تنوع گسترده و کیفیت حسابرسی، شواهدی از چین - امرالد 2018

Abstract

Purpose Audit firm diversification can take many forms. Strategic management theory suggests that if the diversification has a narrow focus, it can have a positive effect on performance through knowledge spillover. However, if the diversification is too wide, the lack of economies of scope may cause an even negative impact on performance. In this study, we examine the effect of an audit firm’s diversification strategy on audit quality. Design/Methodology/Approach Specifically, we test whether auditors can benefit from knowledge spillover in their area of specialization. Findings we find that the magnitude of discretionary accruals and the balance of below-the-line item are significant lower for clients from narrowly diversified area than those from a widely diversified area, suggesting a higher audit quality due to possible knowledge spillover. In addition, we find such benefits are more pronounced with clients with high earnings volatility. Originality/Value This study extends the studies on auditor industry specialization by examining the effect of audit firms' diversification on audit quality and assessing potential differences on audit quality between narrow and wide diversification.

VII. Conclusion

Diversification has been a topic in strategic management for years. This study examines the relationship between audit quality and a firm’s diversification on client industry membership. Consistent with prior literature, we find that the magnitude of discretionary accruals of clients in auditors’ industry specialty area is much lower than that of a nonspecialty area. When further partitioning the non-specialty area into two groups, the area with industry groups closely related to the auditor’s specialty area (or narrowly diversified area) and the area with industry groups not closely related to auditor’s specialty area (or widely diversified area), we find that the magnitude of discretionary accruals and the balance of below-the-line item are significant lower for clients from narrowly diversified area than those for clients from a widely diversified area, suggesting a possible benefit from knowledge spillover. In addition, we find such benefit is more pronounced for clients with more volatile earnings and thus higher accounting complexity.