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Porter's (1985) analysis of competitive strategy is used to explain industry specialization by Big 6 accounting firms. In Porter's framework, industry specialization can be viewed as a differentiation strategy whose purpose is to create a sustainable competitive advantage relative to nonspecialist auditors. A differentiation strategy will lead to higher audit fees if valued by clients. We find evidence of higher fees for Big 6 industry specialists relative to nonspecialists in the U.S. audit market, but only for companies in the lower half of the sample based on size (assets <$123 million). By contrast, companies in the upper half of the sample do not pay a specialist premium, and audit fees actually decrease as a company becomes increasingly large relative to its auditor's industry clientele. Together these results suggest that audit fees are higher when clients are small and have little bargaining power, but audit fees are lower when clients have greater bargaining power and this is more likely when companies are large in absolute size and large relative to their auditor's industry clientele.

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Awareness of the importance of human information processing research to accounting issues has increased dramatically since 1977. As a result, this literature has expanded in volume and addresses a larger spectrum of accounting problems. Further, it incorporates a wider variety of theories and methodologies. This paper draws upon the framework provided by Libby and Lewis (1977) to synthesize and evaluate accounting research conducted since 1977 using the lens model, probablistic judgment, predecisional behavior, and cognitive style approaches. In addition, the impact of the research on practice and some directions for future research are discussed. * The authors gratefully acknowledge the Paton Accounting Center for financial support and Garry Marchant for his assistance.

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