A Review of Theories on Auditor Industry Specialisation

Khairul Ayuni Mohd Kharuddin*, Ilias Basioudis

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Auditor industry specialisation is a strategy adopted by audit firms to differentiate themselves from competitors in fulfilling clients’ demands for better financial reporting quality. The concentration of resource and technology investments in a particular focus industry or a number of industries allows them to build their reputation as an industry expert. Hence, providing them with a competitive advantage and greater market power over their rivals. The aim of this paper is to discuss the various theories which explain the role of the industry specialist auditor in promoting financial reporting quality. A company’s financial reporting quality is normally associated with the company’s quality of reported earnings and the quality of its audit. The product differentiation theory, production efficiency theory, reputation theory, and spatial competition theory each have their own merit and relevance in providing distinct explanations on the demand and supply side of industry specialist auditors, and how industry specialisation strategies could have differential effects on the auditor’s fees and quality of services offered by the industry specialist auditors. In terms of implication and contribution, our paper would be of interest to academicians, practitioners, regulators, and policymakers in trying to understand the auditor industry specialisation phenomenon. Our paper also contributes to the literature as this is the first paper that comprehensively provides a synthesis and a holistic view of how these four theories complement each other in explaining the role of the industry specialist auditor in promoting financial reporting quality.
Original languageEnglish
Pages (from-to)1701-1714
JournalInternational Journal of Academic Research in Business and Social Sciences
Issue number9
Publication statusPublished - 19 Sept 2022

Bibliographical note

Copyright © 2022, The Author(s). Published by Human Resource Management Academic Research Society (www.hrmars.com). This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non0-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: https://creativecommons.org/licences/by/4.0/legalcode


  • Auditor Industry Specialisation
  • Industry Specialist Auditor
  • Theory
  • Product Differentiation
  • Production Efficiency
  • Reputation and Spatial Competition


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