Fiscal year-end and non-lateral auditor switches

Nancy Chun Feng

Journal of Applied Accounting Research, 2013, vol. 14, issue 3, 268-292

Abstract: Purpose - – The purpose of this paper is to examine the potential effect of busy season resource constraints on the selection of a new auditor, conditioned upon the status of the prior auditor. Design/methodology/approach - – The paper employs multivariate logistic regressions for a sample of firms that changed auditors between 1979 and 2005 to explore the empirical correlations between having a December fiscal year-end (FYE) and non-lateral switches. Findings - – The paper finds that non-BigN clients with December FYEs are less likely to switch to BigN auditors than those with non-December FYEs prior to the enactment of the Sarbanes-Oxley Act (SOX). This trend subsides after SOX. For firms with BigN predecessor auditors, fiscal year-end appears to have insignificant influence on auditor switching. Research limitations/implications - – The findings suggest that upwardly mobile clients face greater audit supply constraints compared to clients already being audited by a BigN firm during the traditional busy season. However, the curbing influence on switching upwards erodes after SOX. Practical implications - – This study is to show the impact of supplier capacity constraints on audit production and structural changes within the auditing profession. Originality/value - – The findings can further the understanding of the determinants of auditor-client realignment, given that the paper identifies and explores the effects of having a December FYE on subsequent auditor appointments, conditioned upon the status of the prior auditor.

Keywords: Auditor change; Fiscal year-end; Supplier capacity constraint; Sarbanes-Oxley Act (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jaarpp:v:14:y:2013:i:3:p:268-292

DOI: 10.1108/JAAR-05-2012-0041

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