Client Characteristics and Auditor Switch in an Audit Failure

36 Pages Posted: 13 Jun 2003

See all articles by Chingfu Chang

Chingfu Chang

National Chengchi University (NCCU) - Department of Accounting

Wuchun Chi

National Chengchi University (NCCU) - Department of Accounting

Chiawen Liu

National Taiwan University - Department of Accounting

Date Written: April 20, 2003

Abstract

This paper investigates whether companies use the auditor-switching announcement as a signal for its compliance with the accounting rules when their auditor's reputation gets hurt. Probing into the legendary Andersen-Enron audit failure, we hypothesize that the compliant company would be hurt more by its relation with Andersen and hence would dismiss Andersen earlier to signal its integrity. Our results indicate, for those of the clients with higher sales growth rate and higher possibility for financial distress, auditor-switching announcement seemed to be delayed. Besides, the fraction of companies choosing another Big 5 as a successor decreases as time elapsed.

Keywords: auditor switch, earnings management, signaling, audit failure

JEL Classification: M41, M43, M49, G34

Suggested Citation

Chang, Chingfu and Chi, Wuchun and Liu, Chiawen, Client Characteristics and Auditor Switch in an Audit Failure (April 20, 2003). Available at SSRN: https://ssrn.com/abstract=403700 or http://dx.doi.org/10.2139/ssrn.403700

Chingfu Chang

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan 116, Taipei
Taiwan
886-2-29393091-81032 (Phone)
886-2-29387113 (Fax)

Wuchun Chi (Contact Author)

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan 116, Taipei
Taiwan
886-2-29393091-81031 (Phone)
886-2-29387113 (Fax)

HOME PAGE: http://www3.nccu.edu.tw/~wchi/

Chiawen Liu

National Taiwan University - Department of Accounting ( email )

50 Lane 144, Section 4
Roosevelt Road
Daan, Taipei 106
Taiwan
886-2-33661126 (Phone)
886-2-23638038 (Fax)

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