Internal Control Opinion Shopping and Audit Market Competition

47 Pages Posted: 1 Oct 2014 Last revised: 8 Jul 2018

See all articles by Nathan J. Newton

Nathan J. Newton

Florida State University

Julie Persellin

Trinity University

Dechun Wang

Texas A&M University

Michael S. Wilkins

University of Kansas

Date Written: April 28, 2015

Abstract

This study examines the extent to which audit clients successfully engage in internal control opinion shopping activities and whether audit market competition appears to facilitate those activities. Regulators have long been concerned about the impact of both audit market competition and opinion shopping on audit quality. We adopt the framework developed in Lennox (2000) to construct a proxy to measure the tendency that clients engage in internal control opinion shopping activities. Our empirical results suggest that clients are successful in shopping for clean internal control opinions. In addition, we find evidence that internal control opinion shopping occurs primarily in competitive audit markets. Finally, our results indicate that among auditor dismissal clients, opinion shopping is more likely to occur when dismissals are made relatively late during a reporting period and when audit market competition is high. Our findings have implications for the current policy debate regarding audit quality and audit market competition.

Keywords: opinion shopping, internal control, material weakness, audit opinion, audit quality, audit market competition

Suggested Citation

Newton, Nathan J. and Persellin, Julie and Wang, Dechun and Wilkins, Michael S., Internal Control Opinion Shopping and Audit Market Competition (April 28, 2015). The Accounting Review 91 (2): March 2016, pp. 603-623., Mays Business School Research Paper No. 2503660, Available at SSRN: https://ssrn.com/abstract=2503660 or http://dx.doi.org/10.2139/ssrn.2503660

Nathan J. Newton

Florida State University ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States

HOME PAGE: http://https://business.fsu.edu/person/nate-newton

Julie Persellin

Trinity University ( email )

San Antonio, TX 78212
United States

Dechun Wang

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

Michael S. Wilkins (Contact Author)

University of Kansas ( email )

Capitol Federal Hall
1654 Naismith Dr.
Lawrence, KS 66045
United States

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