The effect of client industry structure on client preference for privacy and auditor concentration

Purpose - The purpose of this paper is to examine the effect of a client's potentially conflicting needs for privacy and industry expertise on auditor concentration.Design methodology approach - The method examines the distribution of auditor concentration assuming that auditor choice occurs ra...

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Bibliographic Details
Published in:Managerial auditing journal 2010-04, Vol.25 (4), p.361-376
Main Author: Mithu Dey, R
Format: Article
Language:English
Subjects:
Accounting firms
Acquisitions & mergers
Auditing
Auditors
Audits
Competition
Competitive advantage
Confidential relationships
Confidentiality
Customers
Hypotheses
Market shares
Mortgage companies
Paperboard
Preferences
Privacy
Proprietary
Regulated industries
Studies
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Summary:Purpose - The purpose of this paper is to examine the effect of a client's potentially conflicting needs for privacy and industry expertise on auditor concentration.Design methodology approach - The method examines the distribution of auditor concentration assuming that auditor choice occurs randomly. It then examines the observed distribution within the random assignment to consider whether the privacy or expertise motive dominates.Findings - The main finding is that at the client industry level, clients in a dominant firm industry structure prefer privacy; whereas clients in a competitive market structure prefer expertise.Research limitations implications - An implication of this paper is that an increase in the number of large auditors may change auditor concentration in client industries that prefer privacy, an auditor different from its competitor.Practical implications - Policy makers should note that auditor concentration is not only a function of the number of auditors, but also of the client industry structure.Originality value - The results provide a new measure for industry specialists and provide additional insight regarding auditor choice when privacy is relevant.
ISSN:0268-6902
1758-7735
DOI:10.1108/02686901011034171