Audit specialisation in Maltese audit firms : an analysis

Abstract

Purpose: The aim of the study is to assess the areas where audit specialisation is more evident, distinguishing between medium and large audit firms in Malta. It also analyses the extent of audit specialisation in audit firms to gauge the impact this may have on audit quality, audit fees and the impact of non-audit services on the specialised industry. Lastly, it addresses whether audit specialisation in certain industries is a pre-requisite for an effective quality audit. Design: An online questionnaire was distributed and answered by 101 audit professionals from medium and large Maltese audit firms. In addition, 10 semi-structured interviews were carried out to partners/directors working in the audit department of medium and large Maltese audit firms. Findings: This study found that audit specialisation is evident in most audit firms since this increases audit quality and helps to gain a better understanding of clients. Furthermore, audit firms believe that specialisation has an impact on audit quality when taking planning decisions and whether a material uncertainty relating to going concern is efficiently detected. In addition, due to the high levels of competition in the market, higher audit fees could not simply be charged due to audit firms being specialists. Finally, it was found that providing non-audit services helps specialist auditors gain more knowledge about that client and the industry. Conclusion: This study concludes that overall, the benefits of audit specialisation outweigh the costs due to efficiencies and synergies created. By having a specialised audit team, whereas audit quality is improved, the audit fees charged are not impacted. In addition, non-audit services have an indirect effect on the specialised audit firm. Implication: By conducting this study, the importance and levels of specialisation when comparing medium and large audit firms have been highlighted. It also explores the incentives and reasons why audit firms specialise in particular industries.