Auditor search periods as signals of engagement risk: Effects on auditor choice and audit pricing

Vivek Mande, Myungsoo Son and Hakjoon Song

Advances in accounting, 2017, vol. 37, issue C, 15-29

Abstract: We examine the effect of auditor search periods (time taken from the dismissal/resignation of the old auditor to the appointment of the new auditor) on successor auditor choice and audit fees. Using a sample of auditor changes during the period 2002–2012, we find that clients associated with long search periods are less likely to be accepted by Big N auditors. Our results also show that successor auditors charge their clients higher initial audit fees following lengthier searches. Finally, we document that delays in appointing successor auditors following resignations are associated with a significantly negative stock market response. Our results suggest that investors, regulators and academics should be heedful of lengthy auditor search periods in their evaluations of audit quality and client risks.

Keywords: Auditor search period; Audit fees; Auditor choice; Auditor resignation; Auditor dismissal; Market reaction (search for similar items in EconPapers)
JEL-codes: M41 M42 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:37:y:2017:i:c:p:15-29

DOI: 10.1016/j.adiac.2017.03.001

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