Does the Timing of Auditor Changes Affect Audit Quality? Evidence from the Initial Year of the Audit Engagement

53 Pages Posted: 3 Jan 2014 Last revised: 23 May 2017

See all articles by Cory A. Cassell

Cory A. Cassell

University of Arkansas

James C. Hansen

Weber State University Goddard School of Business and Economics

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Timothy A. Seidel

Brigham Young University

Date Written: September 1, 2016

Abstract

We focus on the first year of the auditor-client relationship and investigate whether audit quality varies with the timing of the new auditor’s appointment. We find that audit quality is not lower for companies that engage new auditors before the end of the third fiscal quarter than for companies that do not change auditors. However, companies that engage new auditors during or after the fourth fiscal quarter are more likely to misstate their audited financial statements than companies that engage new auditors earlier in the year and companies that do not change auditors. In additional tests, we find that the decrease in audit quality associated with late auditor changes is more pronounced for companies with complex operations (i.e., more operating segments). These results suggest that the extent to which audit quality suffers in the first year of audit engagements is affected by both the amount of time required to understand the client’s business, assess risks, and perform the audit (all of which are driven by client complexity), as well as the amount of time available for auditors to perform these tasks.

Keywords: audit quality; auditor changes; misstatements; auditor independence

JEL Classification: M40

Suggested Citation

Cassell, Cory A. and Hansen, James C. and Myers, Linda A. and Seidel, Timothy A., Does the Timing of Auditor Changes Affect Audit Quality? Evidence from the Initial Year of the Audit Engagement (September 1, 2016). Journal of Accounting, Auditing and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2374162 or http://dx.doi.org/10.2139/ssrn.2374162

Cory A. Cassell

University of Arkansas ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

James C. Hansen

Weber State University Goddard School of Business and Economics ( email )

1337 Edvalson St. Dept 3803
Ogden, UT 84408
United States
801-626-6433 (Phone)

Linda A. Myers (Contact Author)

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

Timothy A. Seidel

Brigham Young University ( email )

Provo, UT 84602
United States

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