SYNOPSIS: The increasing occurrence of accounting restatements has drawn considerable attention from regulators, audit firms, and corporate boards concerning audit and financial statement quality. Research suggests that auditor industry specialization is associated with improved error detection and greater financial statement quality. We examine the impact of auditor industry specialization on a sample of restatement and nonrestatement firms and find that auditor industry specialization is negatively associated with the likelihood of accounting restatement. In addition, focusing on the subset of restatement firms, we find that auditor industry specialization reduces the likelihood of issuing restatements affecting core operating accounts, suggesting that industry specialization adds value in auditing a particularly critical area of the firms’ continuing operations. Finally, we find changing from a nonspecialist to a specialist auditor increases the likelihood of restatement, and changing from a specialist to a nonspecialist reduces the likelihood of restatement. Our findings are consistent with industry specialization enhancing auditors’ role in improving the quality of the financial reporting process, particularly related to the core operations of their clients.

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Chinese accounting students, Chinese auditors, national culture, ethical reasoning,

This study investigates whether the professional context of accounting ethical dilemmas influences accounting students' moral reasoning. In a between-subjects experiment, 101 accounting students from a large public AACSB-accredited university in the U.S. responded to four ethical dilemmas faced by either auditors or corporate accountants designed to measure their deliberative moral reasoning. As expected, students in the audit condition exhibited significantly higher deliberative moral reasoning than students in the corporate accounting condition. Supplemental analysis indicates this finding is robust to commonly influential demographic characteristics and perceptions about the current business environment. These results are consistent with accounting students having more audit-based ethical knowledge structures which do not flexibly transfer to resolving ethical issues in the corporate accounting context.

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