Abstract
This study examines whether the investors’ interpretation of discretionary accruals is impacted by auditor characteristics, namely auditor industry specialisation, the auditor/client economic bonding, and auditor tenure. The empirical results confirm our argument that investors do not perceive audit quality to be uniform within the Big 4 auditors. They price discretionary accruals of Big 4 clients differently, depending on auditor characteristics. In particular, auditor industry specialisation is an attribute that the market interprets positively. Furthermore, the economic bonding between the auditor and the client firm also sends a positive signal to the market. On the other hand, the length of auditor tenure does not influence the market’s interpretation of discretionary accruals. This research is important since it highlights auditor attributes that influence investors’ perception of audit and earnings quality.