We study the determinants of auditor industry specialization, the impact of specialization on fees and audit quality, and a regulator's optimal choice of audit standards in the presence of specialization. In industries with correlated firm values, a specialist auditor enjoys synergies from...

The accounting profession has raised concerns that excessive liability exposure renders audit firms unwilling to provide audit services to risky clients, limiting the prospective clients' ability to raise external capital. We address this concern in a model in which the auditor evaluates the...