Auditor Industry Specialists and Accrual Informativeness
|Speaker:||Professor Ann Vanstraelen , Maastricht University|
|Date:||Wednesday 21 November 2018|
We examine the relation between auditor industry specialists and the mapping of accruals into future cash flows, a key attribute of informative accounting. Using a pooled sample, we find a weaker relation between accruals and future cash flows for firms audited by an industry specialist, suggesting that they are associated with less informative accruals. However, a latent class analysis to identify clusters of firms with a homogenous regression structure reveals one cluster, representing 37 percent of the pooled sample, in which auditor industry specialists are associated with more informative accruals. Moreover, the probability of belonging to this group is higher when the average similarity across all firms in that industry is greater. These results suggest that while industry specialist auditors are associated with less informative accruals on average, there is considerable sample-wide variation in these results. Overall, our findings shed new light on the effects of industry specialist auditors.