Auditor specialization, perceived audit quality, and audit fees in the local government audit market

Suzanne Lowensohn, Laurence E. Johnson, Randal J. Elder, Stephen P. Davies

Research output: Contribution to journalArticlepeer-review

94 Scopus citations


Prior governmental research implies a positive relation between auditor specialization and audit quality, but the effect of specialization on audit fees is mixed. However, no single governmental study investigates the effect of auditor specialization on both audit quality and audit fees. Also, prior studies focus on either large- or small audit firms and often employ indirect proxies for audit quality. We study the effects of auditor specialization on perceived audit quality and audit fees. Our data represent both Big 5 and smaller audit firms and include three market-based measures of specialization. We survey 241 Florida local government finance directors and find that specialization is positively associated with perceived audit quality but not with audit fees. We also find that Big 5 auditors, often used as a proxy for higher audit quality in prior research, are not uniformly associated with increased perceived audit quality but consistently charge higher audit fees. Our results confirm a relation between measures of audit firm specialization and audit quality and raise questions regarding audit firm size and audit quality in the municipal sector. Our findings suggest that engaging specialized auditors may be good policy for many local governments.

Original languageEnglish (US)
Pages (from-to)705-732
Number of pages28
JournalJournal of Accounting and Public Policy
Issue number6
StatePublished - Nov 2007


  • Audit quality
  • Auditor specialization
  • Government audit market

ASJC Scopus subject areas

  • Accounting
  • Sociology and Political Science


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