Management Influence on Auditor Selection and Subsequent Impairments of Auditor Independence During the Post-SOX Period

Posted: 10 Mar 2014

See all articles by Dan S. Dhaliwal

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Phillip T. Lamoreaux

Arizona State University

Clive S. Lennox

University of Southern California

Landon M. Mauler

Florida State University - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: February 24, 2014

Abstract

This study investigates the influence of management over auditor selection decisions during a period in which audit committees have “direct responsibility” for auditor selection. We find that contrary to the intent of SOX, management appears to retain significant influence over auditor selection in the subset of companies that select Big 4 auditors and this is not mitigated by higher quality audit committees. As SOX presumes that management influence over auditor selection leads to negative outcomes, we also examine the impact that management influence on auditor selection has on proxies for subsequent auditor independence during the post-SOX period. We find no consistent evidence that audit quality is different for companies whose managers appeared to influence auditor selection, where audit quality is measured by the propensity to issue going concern opinions, the propensity to meet or just beat analyst earnings forecasts and abnormal accruals. We also find no consistent evidence that the quality of the audit committee influences the relationship between audit quality and management influence on auditor selection.

Keywords: auditor independence, auditor selection, sarbanes-oxley act, affiliations

Suggested Citation

Dhaliwal, Dan S. and Lamoreaux, Phillip T. and Lennox, Clive and Mauler, Landon M., Management Influence on Auditor Selection and Subsequent Impairments of Auditor Independence During the Post-SOX Period (February 24, 2014). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2406784

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Phillip T. Lamoreaux (Contact Author)

Arizona State University ( email )

Tempe, AZ 85287
United States

Clive Lennox

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Landon M. Mauler

Florida State University - Department of Accounting ( email )

Tallahasse, FL 32306
United States

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