WITHIN OR ACROSS AUDITORS? UNDERSTANDING KNOWLEDGE TRANSFER IN AUDIT PRODUCTION

Knowledge transfer affects audit production: it is an underlying reason for specialization premiums and economies of scale. Using measures of client-level comparability to proxy for the internal (within-auditor) and external (across auditors) knowledge transfers that occur during audit production, our results indicate that internal knowledge transfer subsumes external knowledge transfer. Although this result may seem intuitive, recent research implies external knowledge transfer significantly impacts audit efficiency. Thus, the dominance of internal knowledge transfer is important to document. We also provide evidence that the benefits of auditor specialization are not uniform, as typically modeled in the literature. Specifically, we provide evidence that knowledge transfer enhances the efficiencies from auditor specialization. Finally, we find knowledge transfer is associated with greater audit efficiency irrespective of auditor specialization or industry homogeneity. Overall, our results reaffirm the importance of within-auditor knowledge transfer and highlight the importance of considering client characteristics when examining knowledge transfer.