Client Engagement Risks and the Auditor Search Period

27 Pages Posted: 31 May 2011 Last revised: 25 Jul 2011

Samer Khalil

American University of Beirut

Jeffrey R. Cohen

Boston College - Department of Accounting

Kenneth B. Schwartz

Boston College

Date Written: May 31, 2011

Abstract

This paper investigates whether client engagement risks lengthen the client acceptance phase for audit firms and result in a longer auditor search period for their clients. Using a sample of auditor resignations over the period 2003-2008, we document that the auditor search period is longer for firms associated with client business risk (financial distress) and audit risk (internal control weaknesses or management integrity issues), while it is shorter for firms representing reduced auditor business risk (auditor industry specialization). These findings highlight the importance of client risk assessment and explain audit firms’ response to perceived client risks.

Keywords: Client acceptance, auditor search period, audit risk

JEL Classification: M41

Suggested Citation

Khalil, Samer and Cohen, Jeffrey R. and Schwartz, Kenneth B., Client Engagement Risks and the Auditor Search Period (May 31, 2011). Accounting Horizons, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1855797

Samer K. Khalil (Contact Author)

American University of Beirut ( email )

Suliman S. Olayan School of Business
P.O.Box 11-0236
Beirut 1107 2020, Riad El-Solh
Lebanon

Jeffrey R. Cohen

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3165 (Phone)
617-552-2097 (Fax)

Kenneth B. Schwartz

Boston College ( email )

Carroll School of Accounting
Chestnut Hill, MA 02167
United States
617-552-3942 (Phone)
617-552-2097 (Fax)

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