Assessment of the Sectoral Specialization at Auditing Firms and its Impact on External Auditing Fees: An Empirical Study on Public Shareholding Companies Listed in the Palestine Exchange

Abstract

There are two objectives of this study: to evaluate the existence

of specialized auditors in Palestinian Auditing firm, and to investigate their

impact on the fees of auditing services performed on public shareholding

companies listed in the Palestine Exchange (PEX) . In order to achieve these

objectives, this study adopts weighted market share approach on a sample

of 49 public companies listed in PEX, covering the period between 2008 and

2012. By utilizing ordinary least square test (OLS) , the study found that there

is a significant presence of specialized auditors in Palestinian Auditing firms

within the study sample, specialized auditors were found in 80% of these

firms (twelve out of fifteen) . In addition, the study found that there are strong

statistical relationships between auditors’ specialization and audit fees.

Auditing fees of industry specialized auditing firm were higher than nonspecializing

audit firm in an industry.

This study highlights the need to reorganize legal requirements, including

licensing, of auditing firms which audited the listed companies in PEX. The

author recommended putting in place a compulsory licensing scheme that

required auditing process to be performed only by licensed and specialized

auditing firms. The author also recommended developing a central database

for auditing firms and companies listed in PEX and their Industry sectors.