Evidence on the Association between Financial Restatements and Auditor Resignations

Posted: 5 Feb 2018

See all articles by Ying (Julie) Huang

Ying (Julie) Huang

University of Louisville

Susan Scholz

University of Kansas - Accounting and Information Systems Area

Multiple version iconThere are 2 versions of this paper

Date Written: November 13, 2012

Abstract

Financial restatements have significant implications for auditor-client relationships. We estimate that a restatement increases the odds of an auditor resignation dramatically. Restatements involving fraud, reversing profit to loss and those disclosed in press releases appear to drive the increased resignation likelihood. Further, companies with relatively severe restatements are more likely to hire smaller auditors following a resignation. Collectively, these results are consistent with auditors interpreting restatements as an indication of increased client risk.

Keywords: restatement, auditor resignation, new auditor type

JEL Classification: M41, M42, G34

Suggested Citation

Huang, Ying and Scholz, Susan, Evidence on the Association between Financial Restatements and Auditor Resignations (November 13, 2012). Accounting Horizons, Vol. 26, No. 3, 439-464 (2012). Available at SSRN: https://ssrn.com/abstract=3109787

Ying Huang (Contact Author)

University of Louisville ( email )

School of Accountancy
College of Business
Louisville, KY KY Kentucky 40292
United States
5028521647 (Phone)
5028521647 (Fax)

HOME PAGE: http://www.linkedin.com/in/ying-julie-huang-02093769

Susan Scholz

University of Kansas - Accounting and Information Systems Area ( email )

1300 Sunnyside Ave
Lawrence, KS 66045
United States
785-864-7554 (Phone)
785-864-5328 (Fax)

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