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Purpose The purpose of this study is to examine whether the timing of auditor terminations signals the riskiness of client firms. Design/methodology/approach This empirical study uses a sample of auditor switches during 2003-2014 to conduct univariate tests and multivariate regression analyses. Auditor switches occurring after the audit report date but before the shareholders’ meeting are classified as “planned” terminations and auditor switches that occur outside of this window are classified as “abrupt” terminations. Findings First, abrupt terminations are more strongly related to client risk factors than planned terminations. Second, relative to planned terminations, abrupt terminations are more likely to result from an auditor resignation rather than a client dismissal. Third, abrupt termination firms are more likely to have internal control weaknesses and experience delistings in the following year. Future operating performance is also worse after an abrupt termination. Finally, auditors and investors view abrupt terminations as riskier than planned terminations. Practical implications As the timing of the auditor termination is publicly available information, it can provide an important signal of deteriorating financial performance to shareholders and potential investors. Abrupt terminations could be costly to shareholders because those firms likely have lower quality financial reporting (due to internal control weakness) and deterioration of future operating performance. Originality/value While concurrent studies investigate the relation between the timing of new auditor appointment and audit quality, this is the first study to document the relation between the timing of auditor termination and the riskiness of client firms.

Focusing on the surge of mergers among Chinese local accounting firms around the year 2000, this study examines the impacts of auditor mergers on audit quality, and documents increased earnings quality for non‐Big 5 clients during the postmerger period. The study also brings up the question for further investigation, whether the Big 5 auditors provide significant higher quality audits than the non‐Big auditors do in China, a far less litigious audit market environment, during the period of 1999–2002. We find limited differences in terms of audit quality between the Big 5 and non‐Big 5 auditors. We do not find significant differences in reported discretionary accruals and probability of reporting losses between Big 5 clients and non‐Big 5 clients. Only with the earnings conservatism proxy, clients with Big 5 recognize bad news more quickly than non‐Big 5 clients. Furthermore, findings of this study suggest the Big 5 audits do not contribute to the accruals quality differences in China, implying legal enforcement and litigation risks have greater propensity to drive auditor incentives.