Thank You, Next: An Examination of Repeat Auditor Changes

Abstract

This study examines the determinants and consequences of repeat auditor changes. Approximately 55 percent of the auditor changes in our 2004 to 2020 sample period are repeat auditor changes, occurring less than eight years from the same client’s previous auditor change. Clients with repeat auditor changes have stronger economic motivations and are more likely to exhibit characteristics suggesting auditor dissatisfaction and client risks than those with single auditor changes. We find that clients generally realize fee savings through repeat auditor changes relative to single auditor changes. However, the market response to repeat auditor changes is more negative than single auditor changes. We highlight important differences between single and repeat auditor changes, and our results suggest that client firms fixating on fees should also consider the incremental market costs of repeat auditor changes. Our results also suggest that investors may benefit from additional disclosures about auditor changes beyond those currently required.

Keywords: auditor changes, dismissal, resignation, audit fees, market reaction

JEL Classification: M41, M42