Auditor Change Disclosures as Signals of Earnings Management and Risk

31 Pages Posted: 22 Feb 2018

See all articles by Stephanie Miller

Stephanie Miller

Yale School of Management

Qin Tan

Yale University

Date Written: February 2, 2018


Auditor resignations are considered more negative signals than auditor dismissals, but firms’ self-reported distinction between the two may not offer a complete or reliable representation of the nature of the auditor change. 8-K regulations require the disclosure of the adjournment of an audit engagement even if a successor auditor has not yet been named. In compliance with this requirement, some firms file two 8-k’s related to the same auditor change. Exploiting these dual 8-K filings, we create a new measure of the nature of auditor changes and show that 1) both self-reported auditor resignations and dual 8-K filings are related to measures of earnings management and risk; and 2) auditor changes identified as both self-reported resignations and dual 8-K filings are associated with the most negative economic implications (as reflected by the likelihood of financial statement manipulation and bankruptcy risk). We suggest that dual 8-K filings and self-reported resignations are complementary negative signals each capturing unique dimensions of the underlying economic factors.

Keywords: Auditor Dismissal, Resignation, 8-K Disclosures, Earnings Management, Risk

JEL Classification: M4, M40, M41, M42

Suggested Citation

Miller, Stephanie and Tan, Qin, Auditor Change Disclosures as Signals of Earnings Management and Risk (February 2, 2018). Available at SSRN: or

Stephanie Miller (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Qin Tan

Yale University ( email )

New Haven, CT
United States

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