The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching

Mohammad Hudaib and T.E. Cooke

Journal of Business Finance & Accounting, 2005, vol. 32, issue 9‐10, 1703-1739

Abstract: Abstract: This study examines the interactive effects of change in managing director/chief executive officer (MD) and financial distress together with five control variables (type of audit firm; audit fees; gearing; time; and company size) on first, audit opinion and secondly on auditor switching. Based on a sample of 297 UK listed companies between 1987 and 2001, we find that companies that are financially distressed and change their MD are most likely to receive a qualified audit report, ceteris paribus. In addition, we find evidence of both familiarity and intimidation threats and that the probability of a switch increases with the severity of qualification.

Date: 2005
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