Auditor Opinion Shopping and the Audit Committee: An Analysis of Suspicious Auditor Switches

Abstract

This study examines whether audit committee effectiveness characteristics are related to suspicious auditor switching. Using the agency and audit committee literature, we hypothesize that audit committee existence, the proportion of independent directors, member experience in accounting, auditing, and nance, number of committee meetings, and number of committee members should be inversely related to suspicious auditor switching.A sample of 60 matched U.S. rms was evaluated along the hypothesized dimensions after controlling for company size, industry, stock exchange, nancial health, and management stock ownership. Collectively, univariate and logistic regression results provide support for our predictions. The ndings indicate that suspicious switchers: (1) are less likely to have an audit committee, (2) have a smaller percentage of independent directors on the audit committee, (3) have fewer members with experience in accounting, auditing, or nance, (4) hold fewer audit committee meetings, and (5) have smaller audit committees than nonsuspicious switching companies. Exploratory analyses also reveal that audit committees for companies with suspicious switches had younger members, and fewer members with no stock ownership in the company served.

Internal corporate governance mechanisms and audit quality: Evidence from GCC region

“…Committee members can attempt to persuade management to select a more knowledgeable auditor with greater reputation (Carcello and Neal, 2003;Kaplan and Mauldin, 2008). Effective audit committee should block unjustified auditor switches as an incidence of opinion shopping (Archambeault and DeZoort, 2001). Moore et al (2006) argued that audit committee has to be responsible for selecting the external auditor and not the managers.…”

“…Moore et al (2006) argued that audit committee has to be responsible for selecting the external auditor and not the managers. The extant research on auditor choice has linked audit committee characteristics and auditor choice in individual tests (Abbott and Parker, 2000;Archambeault and DeZoort, 2001;Carcello and Neal, 2003;Lee et al, 2004). These studies have resulted in contradictory and inconclusive results.…”

“…The non-matched sampling has been previously used by Archambeault and DeZoort (2001), Eichenseher and Shields (1989).…”

“…(2) Combined scores of board of directors and audit committee effectiveness using a combinedtheoretic perspective of economic and behavioral theories: the extant research has empirically linked auditor change with board of directors and audit committee characteristics in individual tests (Archambeault and DeZoort, 2001;Nazri et al, 2012a). These studies have resulted, to some extent, in conflicting and inconclusive results.…”

The Nature of a Dynamic Relationship between Audit Committee and Auditors, both Internal and External

“…Similarly, the SEC issued rules to exclude any member who is not independent (i.e., who was or still working for the company during the last three years, who receives compensation for participating in other committees which have links with the audit committee [10][11][12][13], or who is a family member of one of the company's executives). In addition to independence, competency is also taken into consideration as regards the composition of audit committee members.…”