Affiliation:
1. University of Pennsylvania.
2. Drexel University.
3. Rice University.
Abstract
This study examines former Arthur Andersen clients and provides evidence on the factors involved in their selection of new auditors after Andersen's collapse. Using a unique dataset that identifies whether former Andersen clients followed their audit team to a new auditor, findings reveal companies with greater agency concerns were more likely to sever ties with their former auditor, whereas those with greater switching costs were more likely to follow their former auditor. We also investigate the effect of the forced auditor change on financial statement quality in an effort to provide insight into the mandatory auditor rotation debate. Using performance-adjusted discretionary accruals as a proxy for reporting quality, our results fail to reveal significant improvements for companies with extreme discretionary accruals that severed ties with Andersen, which is inconsistent with the notion that mandatory rotation improves financial reporting.
Publisher
American Accounting Association
Subject
Economics and Econometrics,Finance,Accounting
Reference59 articles.
1. American Institute of Certified Public Accountants (AICPA). 1978. The Commission on Auditors' Responsibilities: Report, Conclusions and Recommendations. New York, NY: AICPA.
2. Asthana, S. C., S. Balsam, and J. Krishnan. 2004. Audit firm reputation, auditor switches, and client stock price reactions: The Andersen experience. Working paper, Temple University, Philadelphia, PA.
3. Auditor Industry Specialization and Earnings Quality
4. Relative valuation roles of equity book value and net income as a function of financial health
5. Barth, M. E., W. H. Beaver, and W. R. Landsman. 2005. Cost of capital and financial statement transparency. Working paper, Stanford University, Stanford, CA.
Cited by
177 articles.
订阅此论文施引文献
订阅此论文施引文献，注册后可以免费订阅5篇论文的施引文献，订阅后可以查看论文全部施引文献