Retain or Rotate: The Association Between Frequent Auditor Switching and Audit Quality

Accounting Horizons (2022) https://doi.org/10.2308/HORIZONS-2022-018

43 Pages Posted: 19 May 2022 Last revised: 20 Oct 2022

See all articles by Elizabeth N. Cowle

Elizabeth N. Cowle

Colorado State University, Fort Collins - Department of Accounting

Ryan Decker

affiliation not provided to SSRN

Stephen P. Rowe

University of Arkansas

Date Written: May 1, 2022

Abstract

Regulators have long expressed concerns about auditor changes and the detrimental impact of opinion shopping on the audit market. While prior studies have examined how single-instance auditor switching impacts audit outcomes, we examine whether frequent auditor switching impacts audit outcomes. We find that more frequent auditor switching is associated with worse audit quality, but that this effect is mitigated in the presence of higher internal and external monitoring. We also find that frequently switching companies have worse audit quality than companies that switch auditors, but do not frequently switch auditors. Taken together, our evidence indicates that a subset of companies participates in frequent auditor switching and that such behavior is detrimental to the audit market. Our findings can inform regulators and practitioners about some of the ramifications of frequent auditor switching and help inform auditor switching regulations and client acceptance procedures.

Keywords: Audit quality, Audit firm rotation, Auditor changes, Audit opinion, Client acceptance

JEL Classification: M41, M42

Suggested Citation

Cowle, Elizabeth N. and Decker, Ryan and Rowe, Stephen P., Retain or Rotate: The Association Between Frequent Auditor Switching and Audit Quality (May 1, 2022). Accounting Horizons (2022) https://doi.org/10.2308/HORIZONS-2022-018, Available at SSRN: https://ssrn.com/abstract=4111639 or http://dx.doi.org/10.2139/ssrn.4111639

Elizabeth N. Cowle (Contact Author)

Colorado State University, Fort Collins - Department of Accounting ( email )

256 Rockwell Hall
Fort Collins, CO 80523
United States

Ryan Decker

affiliation not provided to SSRN

Stephen P. Rowe

University of Arkansas ( email )

Business Bldg. 450
Fayetteville, AR 72701
United States

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