Does Italy Have a Stronger National Level of Industry Expertise Than a Local Level?

Abstract

We examine whether national industry expertise in Italy is more dominant than local expertise. Prior studies from Australia, U.S., and U.K. show that audit fees for industry experts are priced at a higher premium at the local level than the national level. These countries have voluntary audit firm rotation, while Italy has mandatory audit firm rotation (MAFR). We predict that Italy has a stronger national level of industry expertise than a local level, in order to better retain and transfer industry expertise. To investigate, we compare audit fee premiums of national industry experts to local levels. Using hand-collected audit fees, we find that the audit fee premium for industry expertise is greater at the national level than the local level. We find corroborating results with audit hours. To provide further support, we conduct analysis for a neighboring country that does not have audit firm rotation. Using hand-collected data from Germany, we find that audit fee premiums for national industry expertise does not dominate over local industry expertise. Our study has implications for countries that recently adopted mandatory audit firm rotation and for countries that discuss such adoption in the future. However, the larger size of Germany does not rule out that size is a factor.