Opinion Shopping and Audit Committees

Clive Lennox ()

No 2002-12, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: This paper tests whether companies engage in opinion shopping and examines the role of audit committees when auditors are dismissed (1996-98). There are three findings. First, US companies strategically dismiss when incumbent auditors are more likely to issue unfavorable audit opinions compared to newly appointed auditors. I estimate opinion shopping motivates 17% of auditor dismissals, and I find opinion shopping dismissals occur significantly later in the reporting period than other dismissals. Second, audit committees are more likely to disapprove of auditor dismissals that are motivated by opinion shopping. This is consistent with the argument that audit committees help maintain the integrity of the audit reporting process. Third, independent audit committee members are more likely to leave committees that disapprove of opinion shopping. This suggests either senior management dismiss audit committee members who oppose opinion shopping, or committee members resign because they do not wish to be associated with opinion shopping.

Pages: 44 pages
Date: 2002-09
Note: June 2002
References: View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitcei:2002-12

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