We examine the positive contagion effect of specialist auditors in reducing earnings management across industries. To our knowledge, this study is the first to provide evidence of positive contagion in the auditing literature. We examine whether an auditor with expertise in one industry can transfer their expert knowledge and skills to another industry, and thus affect the client’s level of earnings management. We find that specialists can use their auditing expertise to reduce accrual-based earnings management, even when auditing outside their scope of industry expertise. We find that auditors who are specialists in particular industries are better than non-specialists at constraining accrual-based earnings management, even for clients where neither auditor is a specialist in the client’s industry. With longer auditor tenure, the positive contagion of auditor expertise is moderated. Lower-quality auditors improve as their tenure grows, tending to close the gap in audit quality.

Can Auditor Expertise Contribute to Positive Contagion?

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