Client Engagement Risks and the Auditor Search Period
27 Pages Posted: 31 May 2011 Last revised: 25 Jul 2011
Date Written: May 31, 2011
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: Suggested Citation