According to IFRS, financial statements must be reported on a fair value basis; since more assets and liabilities are measured at fair value, auditors must deal with the complexities of auditing fair value measurements. From the viewpoint of earnings quality, companies’ asset evaluation processes may become more complex and require more judgments under the basis of fair value reporting, and these complexities and judgment requirements may provide more room for earnings management. Since the adoption of IFRS may cause significant changes in company accounting and auditing processes, the question arises concerning whether the audit quality of specialist auditors remains better than the quality of non-specialist auditors under fair value accounting. The objective of this proposal is to explore the influence of auditor industry specialization on earnings quality under IFRS-based accounting standards and to examine whether the differential audit quality of industry specialization is driven at the firm level, the individual level, or both. First, I will investigate the earnings manipulation behavior through recognizing and reversing asset impairment loss of managers. Second, I will explore the impacts of specialist auditors on enhancing financial reporting quality under fair value accounting. I expect that specialist auditors who provide better audit quality are more likely to improve company earnings quality by restraining asset impairment-related earnings management. Finally, while the regulations in Taiwan require audit reports for public companies to be certified by two audit partners, I will examine the effects of specialists on both the firm level and the individual level. Since the industry knowledge actually belongs to the individual auditors, I expect that individual specialist auditors who perform better-quality audits are more likely than specialist auditors at the firm level to improve company earnings quality by restraining asset impairment-related earnings management.
