Auditor industry expertise in Italy: evidence from Big 4 Partners

Auditor industry expertise is investigated from three lines of research areas: 1) transfer of auditor expertise, 2) effects of mandatory audit firm rotations; 3) effects of the adoption of international financial reporting standards and of strengthens of internal controls over financial reporting. Interviewing Big 4 partners in Italy, we learn that the area-level of industry expertise, differently from common law countries, complements the national-level, allowing for the transfer of tacit and codified knowledge among offices where the mandatory audit firm rotation cycle reduces the useful life and quality of office-level industry expertise. We learn that recent regulatory actions have increased the demand for task expertise but not industry expertise. Results could have implications: for regulator of European Union countries in the implementation of the mandatory audit firm rotation rule; for manager of audit firms in the decision of localization of offices and in their employees’ organization to improve audit quality.